The Benefits of Loan Origination Automation

Loan origination automation speeds the approval process


According to a study on digital banking, 78 percent of US consumers prefer banking online, with 41 percent favoring mobile applications and 37 percent their financial institution’s website. When it comes to the loan origination process, automation is becoming increasingly important for consumer lenders. In fact, according to research by The Digital Banking Report, if a loan application takes more than five minutes, the application is about 60 percent more likely to be abandoned. While over half of the lenders surveyed lost over 75 percent of potential business from application abandonment, the research also found that with faster processing times, abandonment rates dropped to under 25 percent.

As these stats suggest, the auto finance market is rapidly changing, creating a chasm between lenders using legacy and modern technologies. Legacy systems that have long been lagging are more rapidly becoming outdated by cloud-based technology. The legacy systems are not equipped to easily manage the regular modifications needed to compete with modern features like automated underwriting and compliance checks in real-time. Older systems cannot keep up with today’s standards for loan origination features, which has caused financial institutions to spend more on upkeep for these old systems than they would spend on loan origination automation.

To keep ahead of the changing market, lenders should automate their loan origination process to give customers a better experience. Additionally, such automation assists lenders with underwriting, decisioning, and workflow, all while lowering risk exposure in their portfolios during these initial stages of loan origination. The key to automating the loan origination process lies in putting in place software and systems that make applying for a loan more straightforward for both the borrower and lender.

The top 10 benefits of loan origination automation are:


10 Benefits of Loan Origination Automation
1) Data Collection and Access Enables lenders to collect and access confidential information, correspondence, and other customer data easily from one place.
2) Efficiency Improves efficiency throughout the loan origination process, with automation allowing lenders to perform credit checks, loan reviews, fraud detection, and other analyses of applicants quickly.
3) Omnichannel Communications Enables notifications and other secure communications with customers through multiple channels like traditional mail, text messages, or emails.
4) Scalability Enhances a lender’s ability to scale their operations up or down without degrading the quality of their processes or decisioning.
5) Compliance Increases compliance throughout the loan origination process—automation assists lenders in adhering to rules and regulations governing lending while also bringing greater flexibility and efficiency.
6) Personalization Personalizes the customer experience by making the application process more intuitive, thus speeding decisioning and offering lenders a means to monitor responses to identify borrowers likely to purchase complementary products.
7) Speed  Provides lenders with the means to quickly assess applicants to structure a loan offer’s terms and rates automatically.
8) Cost Reduction Reduces costs for labor, paper, postage, and storing documents while truncating processing times.
9) Decisioning Helps lenders analyze data to make an informed credit decision, decreasing decisioning times, improving efficiency, and making more accurate lending decisions.
10) Risk Management Improves a lender’s ability to manage risk by providing tools to verify applicant information and detect fraud.

Utilizing Loan Origination Automation


Loan origination automation facilitates quicker decisioning, giving those lenders that embrace it a notable advantage over competitors. Automation can be used for a wide array of functions.. Though it certainly speeds up approvals, enabling borrowers to get money more quickly and driving better customer relations, the underlying efficiency it brings to the lending process goes well beyond that. Here are some of the functions that can be automated effectively.

Collecting Customer Information

For applicants, the information collection phase is one of the most frustrating parts of the loan origination process. Automation inherent in intuitive software helps prevent duplicated and inconsistent data from mucking up applications while they’re being filled out while also speeding the process by pre-populating fields with existing information the system already has on record.

This streamlines the process of inputting data on digital forms, significantly lowering the possibility that inaccurate data makes its way into the lender’s system and helping to ensure data integrity. Rules applied during the application process also allow lenders to quickly differentiate which applications can be automatically approved and which require further evaluation by underwriters. Additionally, it enables lenders to use trended data in credit reports to discover which applicants are least likely to become delinquent or default on loans.

Another problem many lenders find with their legacy systems involves the inability to easily share customer information collected during loan origination. Process automation allows more seamless integration between departments and locations. While this siloing of data is often done for compliance purposes, it often leads to errors and inefficiency. Modern loan origination software utilizes security protocols that prevent unauthorized users from viewing and accessing certain information, making it more difficult for bad actors to steal customer data.

Establishing Creditworthiness

The facilitating of data exchange is an essential aspect of modern software for loan originations. Process automation allows lenders to pre-screen applicants, often providing a decision in seconds by evaluating all the financial data collected in the origination process. To establish an applicant’s creditworthiness, decisioning driven by data gives lenders a real-time view of the risk exposure they face from approving any given loan. Deeper analysis can uncover hidden risks or rewards, enabling lenders to avoid or take advantage of specific lending opportunities based on the data.

With some of the most advanced software used to evaluate data gathered during the loan origination process, automation enables lenders to plug into alternative credit databases. These enable lenders to make decisions based on criteria other than those in traditional credit scores, allowing lenders to take advantage of additional lending opportunities without increasing risk.

These tools help lenders establish an applicant’s creditworthiness by looking at:

These tools help lenders establish an applicant’s creditworthiness by looking at

The ability to regularly make monthly payments can be demonstrated through records that show rental, mobile phone, or utility payments. Frequent changes in address or employment can reveal an applicant’s financial stability or lack thereof. A driving record could indicate an applicant’s recklessness, whereas public records could uncover evidence of criminal conduct. An applicant with sufficient assets may also be offered better terms, as these assets could be used as collateral.

Automation in Decisioning

The decisioning process traditionally was left up to underwriters, who decided which loans to fund based on data collected during the loan origination process. Automation doesn’t remove underwriters from the process but instead focuses their skills on applications with nuances that don’t allow for a straightforward approval or denial. The most advanced loan origination software can be integrated to apply decisions on applications so that they’re either automatically approved, denied, or sent on for evaluation by a human underwriter.

Decisioning relies on analyzing massive amounts of data gathered throughout the loan origination process. Automation helps lenders analyze this data to make an informed credit decision, often in near real-time. By automating originations, lenders can decrease decisioning times, improve efficiency, and make more accurate decisions without raising their risk exposure.

More advanced loan origination platforms enable lenders to integrate with cloud-based analytics applications and databases that assist lenders in making more accurate decisions. They should also be able to structure a loan that best fits the lender’s business model and the borrower’s needs. In leading software platforms that manage loan origination, process automation includes integration with existing systems or software, with provisions that link them to databases so that these functions can be done seamlessly.

In the final step of the loan origination process, automation can play a crucial role in decisioning. Lenders can base their decisions on specific policies and relevant rules and regulations to approve or decline a loan automatically. Though human judgment may never be removed from the decisioning process, automated approvals and declines will likely become increasingly commonplace.

What to Automate?

Looking at loan origination, process automation should make a lender’s operations more efficient and improve their customers’ experience. This involves automating tasks like data entry, risk assessments, and rules-based decisioning, which will reduce the labor a lender’s employees will be required to do.

Automating the loan origination process should include:

  • Checking for incomplete applications
  • Collecting information from applicants
  • Communicating with customers
  • Covenant monitoring
  • Decision rules
  • Evaluating documents to pre-approve
  • Extracting and making available credit data from third party websites
  • Managing collateral
  • Predictive modeling

Certain of these processes should include options that allow humans to override them. This is especially true when it comes to dealing with customers.

Loan Origination Automation for Risk Management


Beginning with the loan origination process, automation improves a lender’s ability to manage risk. Automating the loan origination process should be a lender’s first step in augmenting their risk management solutions, as it’s during this initial phase that lenders gather the data that can best help them manage risk. Manual underwriting procedures follow a rules-based approach to evaluating risk, which is precisely what automated systems do.

Automation seeks to minimize this risk as much as possible, though this depends on the integrity of the data gathered before and during the initial application process. By including automated solutions when collecting information from an applicant, lenders help confirm that their data is accurate. This completes the circle, as ensuring data accuracy helps lenders manage their risk exposure, which starts with the loan origination process. Automation is critical to ensuring data integrity throughout the lending process.

Loan Origination Process Automation & Servicing


Once a loan’s been approved and funded, it still requires monitoring to ensure risk is managed appropriately. Some loan origination platforms can even be part of a more holistic, end-to-end lending process. Specific triggers may be put in place based on data gleaned from the loan origination process, with automated tools that send messages via a customer’s preferred means of contact should a payment be late. Automation can also help ensure a lender’s regulatory compliance by creating an audit trail that regulators can follow if necessary.

Even after the loan origination process, automation can manage and monitor risk monthly, quarterly, or annually. Automated systems can look for red flags that may indicate a default is imminent, provide an assessment of the loan’s current value, or track a loan throughout its lifecycle. These automated tools can exist outside a lender’s loan origination platform, though to ensure the accuracy of its data and make it more efficient and effective, it’s best to include it.

How an Automated System Streamlines the Origination Process


The challenges of the current lending climate put pressure on lenders to quickly process all lease and loan applications and adapt to sudden changes in consumer and market demand. Modern cloud-based, configurable systems provide a competitive advantage when it comes to loan origination automation.

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 the benefits of loan origination automation, contact our team today and learn how our cloud-based loan origination products can transform your business.

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