How to Choose the Best Loan Origination System Vendors

Choosing the best loan origination system vendor leads to positive loan application outcomes for customers and lenders.

If you haven’t evaluated loan origination system (LOS) vendors in more than five years, you’ll find – when you do – that significant changes have taken place. The market is growing rapidly. A report by Allied Market Research forecasts the global loan origination software industry to reach $12.2 billion, with a compound annual growth rate of 10.2% from 2023 to 2032. The report highlights several factors fueling this growth, including a widespread adoption of artificial intelligence, machine learning, and blockchain technologies, improved customer experience, and other advances in LOS technology.

To remain competitive in the lending industry, you need a modern LOS that benefits both the lender and the borrower. Below, we suggest some important criteria to help you select the best loan origination system vendor for your needs.


Loan Origination System Vendor Selection Criteria
1.) Focus Look for a vendor exclusively focused on the lending industry.
2.) Platform A containerized, cloud-based loan origination system gives you a foundation for innovation, peak performance, stability, and scalability as your business grows.
3.) Capabilities Look for LOS solutions with options for customization.
a.) No-code Configurability
User-friendly configuration allows you to modify the LOS easily to meet your specific loan processing requirements.
b.) UI, Menus, Dashboard
Flexible capabilities let you customize the user interface, menus, and dashboards to improve underwriting and funding efficiency.
c.) Decision Rules
Automated decision rules and “smart queues” for underwriter review replace inefficient, time-consuming manual decisions. This enables underwriting and funding staff to focus on more complex or higher-value decisions that require lending expertise.
d.) Automation
Automation eliminates manual processes, accelerates loan decisioning, reduces processing costs, and allows you to process more applications with existing resources.
e.) Data/Services Integration
Data and service capabilities should be pre-integrated and allow for additional custom integrations, so you can easily configure the data to be used  access where and when you want during the loan origination process.
f.) Digital Documents
Digital documents eliminate the cost and time of copying and sending hard copies, lost or incomplete paperwork, and physical document storage.
g.) Analytics
Lenders gain distinct efficiency benefits by applying analytics to loan origination processes and borrower-attribute data that’s captured throughout the loan lifecycle.
h.) Complex Pricing Matrices and Models
Solutions should allow system admins to modify complex pricing matrices and models quickly, in response to unique business and system needs.
4.) Implementation LOS implementation should not be a protracted, time-consuming, and costly process.
5.) Other Factors Look for evidence of a vendor’s trustworthiness – in both qualitative and quantifiable metrics.
a.) Community
A LOS vendor should be engaged with its community of customers for the mutual success of vendors and customers.
b.) VC Investment
A significant venture capital (VC) investment is a solid endorsement of the vendor’s strategy and prospect for above-average market growth.

We understand the gravity of selecting a LOS vendor. That single, critical decision will affect your lending business for years. We also understand how time-consuming the evaluation can be. The guidance we offer regarding LOS vendor selection criteria is based on the following:

  • Decades of expertise in the auto lending industry
  • Experience working with partners on complementary lending functionality
  • Research and investments in new and proven technologies to make auto lending more efficient and cost-effective
  • A customer community that continually provides guidance and feedback about business needs and software functionality

We’ve identified high-level comparison criteria to guide your evaluation process—focus, platform, capabilities, implementation, and trust. We are confident these criteria will support your selection of a loan origination system that improves your loan origination efficiency, lowers processing costs, and helps you comply with changing regulations.


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1) Focus


When you need a major home or car repair, you seek someone with recognized experience. You could take your Toyota to the local garage, but you’ll feel more confident bringing it to a shop that specializes in Toyotas. The same applies to plumbing, electrical, or roofing.

The value of specialized expertise also holds true when selecting a loan origination software vendor. Thousands of software vendors offer solutions for almost every business function, but it’s improbable that each of those products is recognized as a market leader. When you look for a vendor exclusively focused on the lending industry, ask these questions:

  • Is loan origination software a primary focus?
  • What’s the history of your loan origination solution?
  • Do your employees—executives, developers, customer support—have experience in the lending industry?
  • Do you have a user community and a means for users to ask questions and share information? Do you hold an annual user conference?
  • Can you provide credible references for lenders who have similar lending practices?

2) Platform


Countless companies worldwide recognize the financial and organizational benefits of moving to the cloud. A cloud-based loan origination system offers advantages that include:

  • Quick implementation that brings improved productivity to your employees’ desktops.
  • Lower startup and operational costs – you no longer need to pay for on-site IT.
  • Ease of scalability as your business grows, application volume increases, or you expand to new regions.
  • System availability of 99.99% or better.
  • Frequent feature updates that improve your system quickly and don’t take time from your IT team.
  • Integration with other complementary cloud-based products to improve process efficiency, decision quality, and portfolio performance.
  • System APIs that are available to clients to allow communication with client systems, customer-facing portals, and dealer management systems. 
  • Containerization to provide stability, peak performance for fast response, and foundational support for future innovation, like machine learning and AI.

3) Capabilities


So, once you’ve vetted vendors and narrowed the field down to those that focus on the lending industry and use cloud-based platforms, it’s time to find an LOS with the right mix of capability and functionality for your needs. That means finding the right combination of configurability, user interface and experience, decision rules, automation, data and services integration, digital documents, and analytics. Get that balance right, and you’ll process more loan applications with existing personnel, lower your processing costs, make better quality lending decisions, and easily comply with regulatory requirements.

No-Code Configurability

No-code configurability lets you modify the system easily without the need to understand complex coding. It’s one of the most powerful capabilities to look for in a loan origination system. 

Unlike legacy systems that require costly and time-consuming programming to make changes, an easily configured LOS enables business analysts and administrators to make those changes directly. You should be able to easily change user interfaces, data fields, menus, decision rules, workflows, queues, and reports. That type of flexibility helps achieve greater efficiency in all aspects of the loan origination process. You can make the system fit your needs, not the other way around. 

Look for the ability to:

  • Modify the system without technical programming skills.
  • Authorize which configuration changes can be made by individual users.
  • Compare before and after configuration changes prior to implementing them in a production system for an added level of verification and assurance.
  • Automatically keep records of configuration changes for good change management and compliance practice.

User Interface, Menus, and Dashboards

Data and process flows for underwriting and verification are unique to each lender. Flexible configuration capabilities let you customize the desktop and format information displayed in menus and dashboards to improve underwriting and funding efficiency.

Look for the ability to:

  • Determine data fields, formats, and locations on the user dashboard.
  • Select the items in drop-down menus based on user role or access rights.
  • Create custom data fields and formulas unique to your lending practice needs.
  • Automatically change the format and layout of the information displayed based on the loan type, e.g., auto, marine, recreation vehicle, solar, personal, commercial, etc.

Automated Decision and Smart Queues

Decision rules offer powerful efficiencies. They replace time-consuming manual decisions, allowing underwriting and funding staff to focus on more complex, higher-value decisions that require firsthand lending expertise. Rules are vital for automating lending processes, as they establish consistent credit policies, determine whether data values (e.g., LTV, term, PTI, or vehicle age) are within a policy, and send automatic alerts when values exceed limits.  

Beyond creating automations, rules also support compliance requirements. Admins can set up decision rules to verify applicant attributes or ensure adherence to regulations.

Look for the ability to:

  • Allow business analysts to define, implement, and modify decision rules.
  • Apply decision rules across all areas of your lending process.
  • Auto-approve or conditionally approve applications based on defined credit policies.
  • Auto-structure a deal that might have typically been declined.
  • Implement fully automated, manual, or mixed lending decisioning processes.
  • Use cascading formulas to facilitate complex decisioning processes.
  • Automatically maintain a history of decision rules to demonstrate compliance.

Automation

You can’t be competitive without an automated loan origination process. Automation – underpinned by decision rules and workflow – eliminates manual processes, accelerates loan decisioning, reduces processing costs, and allows you to efficiently and accurately process more applications with existing resources.

Automation allows lenders to develop various deal structures based on the original loan approval. With multiple offers to choose from, dealers have greater flexibility to build custom deals within a lender’s policy and better match a customer’s lending profile.

Look for functionality that provides:

  • Out-of-the-box underwriting and funding workflows that you can easily configure to meet specific processing needs.
  • Auto-decline workflows to eliminate unqualified applications and respond with adverse action notifications (and create audit trails).
  • Auto-structuring capability with credit policies tied to rules or formulas that return decisions in seconds.
  • Automated calls to credit bureaus and alternative credit data services that return data in a normalized format useful for rules-based, mixed, or manual decisioning.
  • Tracking and analysis of automated processes for continual process improvement.

Data and Services Integration

A wealth of detailed applicant information is available to lenders through credit bureau data, alternative credit data, and valuation services. This information helps lenders make better quality decisions and comply with ever-changing regulations. Integration with these services, however, can present a significant stumbling block when data field and format variations returned by different credit services hinder effective data use. 

Look for data and service integration capabilities that:

  • Are already pre-integrated, allowing you to easily configure the data you want to access.
  • Normalize variations in credit data fields and formats to make the information accessible in decision rules and calculations and provide a consistent format throughout the loan origination process.   
  • Allow you to aggregate a wide range of attributes like FICO score, income, homeowner/renter, dealership, down payment, collateral, etc., to create a more accurate assessment of an applicant’s creditworthiness.  
  • Give you access to hundreds of credit attributes that can be used to improve loan scoring, particularly in subprime categories.
  • Provide automatic calls to services to verify applicant information and process applications following regulations like Regulation Z, the Equal Credit Opportunity Act, and usury rules.

Digital Documents

Transforming inefficient paper loan applications into digital documents accelerates the loan origination process and reduces costs. Digital documents eliminate the cost and time of copying and sending documents, lost or incomplete paperwork, and physical document storage. Digital documents can replace paper correspondence and notifications by using automated email and text with attached or linked PDFs

Look for digital document capabilities that:

  • Manage both incoming application submissions and outbound correspondence.
  • Provide multiple channels for digital communications—scanned images, email, text, and PDFs.
  • Have the ability to securely retain digital documents as business records in support of compliance requirements.

Analytics

Any process-intensive industry can benefit from analytics. Lenders gain two distinct benefits from analytics applied to loan origination processes and borrower-attribute data captured throughout the loan lifecycle.

First, analytics can tell you how well current loan origination processes are performing, yielding answers to questions like: Where are the time-consuming manual steps that could benefit from process automation? Which underwriters make the best decisions regarding subprime applications? What is the average time spent on loan evaluation by individual underwriters? How many applications from a specific dealer exceeded the target decision time?

Second, analytics can identify borrower characteristics and loan structures that positively or negatively affect portfolio performance. You’ll be able to answer questions like: Which attributes of subprime borrowers are highly correlated with 90+ days past due delinquencies? What LTV rates help reduce defaults for used vehicles over five years old? What was the impact of extending terms to 80 months compared to 72 months? Are there market segments we could profitably serve if we had more detailed applicant data?

Look for analytic capabilities that:

  • Do not require technical expertise (SQL programmers), but allow business analysts to explore the data and create reports.
  • Allow the creation of custom calculations to monitor performance metrics.
  • Provide high-level (executive) and granular (drill-down to an individual loan) analysis.
  • Provide easily consumed analysis via visualization: maps, charts, and graphs.
  • Automatically display report data based on the user profile, e.g., regional performance for district managers, branch performance for local managers, and personal performance for individual underwriters.

Complex Pricing Matrices and Models

Complex pricing matrices and models should allow for quick modification by system admins in response to unique business and system needs.


4) Implementation


To fully enjoy the benefits offered by a modern loan origination system, implementation should not be a protracted, time-consuming, and costly process. The time-to-value for a modern loan origination system should be measured in weeks, not months.

Quick implementation is facilitated by:

  • Cloud-based loan origination systems.
  • A dedicated team of specialists exclusively devoted to the success of your system implementation.
  • Capabilities to quickly configure out-of-the-box functionality to meet the exact needs of your lending practices, policies, and processes.

5.) Other Factors

Community

No experienced, successful loan origination system vendor develops products in isolation. Regular, ongoing engagement with a community of customers is vital to the mutual success of vendors and customers. 

Customer interaction offers the vendor valuable insight into actual product usage, potential enhancements, and overall product direction based on customer consensus. Customers benefit from information shared among the community, addressing problems and best practices via:

  • A dedicated client executive backed by a team of technical account experts.
  • Knowledgebase of articles and release notes.
  • Step-by-step how-to videos.
  • Online support case management.

Venture Capital Investment

Confirmation of a vendor’s current and future success is the length of time in the business, the number of customers and business partners, and investments by venture capital firms. In a highly selective venture capital (VC) market, a significant investment by a venture capital firm is a solid endorsement of the vendor’s strategy and prospect for above-average market growth. VC investment should give any lender added confidence.

Selecting Loan Origination System Vendors By Market Share


Lenders seeking an LOS vendor often start by checking the market share of a specific brand, which can reveal industry leaders and niche players. You’ll get a high-level overview of software functionality and capabilities, and you might gain some insight into each vendor’s market strategy and focus. This approach offers some pros and cons.

The Pros

Almost every industry can point to innovative market leaders. They may have been industry pioneers, building their businesses on the strength of innovative technology and early market entry. They may offer several loan origination products or integrate products for a best-of-breed solution. Mid-tier vendors focus on small-to-mid-size lender needs. Late-entry, promising players may also be included in the rankings for their unique market focus or innovative technology.

That said, innovative market leaders indicated by market share:

  • Continue to bring new ideas and innovation to the market.
  • Usually have well-established support services.
  • Demonstrate financial strength and staying power.

Choosing an innovative market leader can lessen the risk of your software investment.

The Cons

Although comparing the market shares of loan origination systems can help identify key players, it may not provide a complete picture of the market landscape nor reflect recent fintech innovations. Consider these additional factors when evaluating potential vendors:

  • A market share report rarely includes all relevant vendors. Some may be overlooked, while others have a nondisclosure policy for revenue. Promising startups may decline to participate because of their comparatively modest revenue.
  • Loan origination systems of established market share leaders may be based on outdated technology, a combination of acquired and poorly integrated software products, or cash cow products that have no roadmap for improvements.
  • Fintech innovators deliver functionality like fraud analytics, credit policies based on machine learning, and vehicle valuation services that can be easily integrated with cloud-based loan origination systems. A legacy LOS may be unable to accommodate the latest services required to compete in today’s market.

Even if you begin an evaluation based on loan origination system market share, we recommend expanding your search to additional vendors. A thorough consideration will include a survey of the latest fintech advancements that are improving lending efficiency and decision quality.

Getting Started

defi SOLUTIONS is redefining loan origination with software solutions and services that enable lenders to automate, streamline, and deliver on their complete end-to-end lending lifecycle. Borrowers want a quick turnaround on their loan applications, and lenders want quick decisions that satisfy borrowers and hold up under scrutiny. With defi ORIGINATIONS, lenders can increase revenue and productivity through automation, configuration, and integrations and incorporate data and services that meet unique needs. For more information on choosing the best loan origination system vendor, contact our team today and learn how our cloud-based loan origination products can transform your business.

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