The Benefits of Loan Origination Automation

Representation of loan origination automation benefits


According to a study on digital banking, 78 percent of US consumers prefer banking online. Automation is becoming increasingly important for the loan origination process. In fact, according to research by The Digital Banking Report, if a loan application takes more than five minutes, it is about 60 percent more likely to be abandoned. Research finds that faster processing times decrease abandonment rates to under 25 percent.

As these stats suggest, the rapidly changing auto finance market creates a chasm between lenders, those who use legacy systems and those who opt for modern technologies. Outdated legacy systems are not equipped to manage regular modifications—a reality of automated underwriting and real-time compliance checks. 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. 

Lenders should automate their loan origination process to keep ahead of the changing market and 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 easily collect and access confidential information, correspondence, and other customer data from one place.
2) Efficiency in Establishing Creditworthiness Allows lenders to perform credit checks, loan reviews, fraud detection, and other analyses of applicants’ creditworthiness quickly and efficiently.
3) No-Code Configurability Enables configurability for workflows, rules, policies, features, the decision engine, and administrative functions.
4) Scalability Enhances a lender’s ability to scale their operations up or down without degrading the speed or quality of their processes or decisioning.
5) Decisioning Helps lenders analyze data to make an informed credit decision, decreasing decisioning times and leading to more accurate lending decisions.
6) Omnichannel Communications Allows notifications and other secure customer communications through multiple channels like traditional mail, text messages, or emails.
7) 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.
8) Speed Provides lenders with the means to quickly assess applicants and automatically structure a loan offer’s terms and rates.
9) Cost Reduction Reduces costs for labor, paper, postage, and storing documents while truncating processing times.
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

Automation expedites this part of the process by pre-populating application fields with existing information and preventing duplicated and inconsistent data. This technology allows lenders to 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.

With so much information being modified and exchanged between the lender and customer, legacy systems cannot compete with loan origination automation. 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

Facilitating data exchange is an essential aspect of modern software for loan origination. Process automation allows lenders to pre-screen applicants, often providing a decision in minutes 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. Lenders can then 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.

Configurability and Scalability

An automated loan origination system’s configurability and scalability are crucial to its effectiveness. Configurability allows loan origination systems to be customized to financial institutions’ specific needs, including banks, credit unions, and online lenders. This flexibility enables institutions to use automation to configure their system for their unique workflows, policies, and features.

Configurable systems often have user-friendly interfaces that empower non-technical staff to adjust settings, rules, and workflows as needed. This reduces reliance on IT resources and facilitates quicker response times to market demands or internal process changes. Configurable loan origination systems streamline processes, reduce manual intervention, and eliminate bottlenecks by allowing users to customize workflows and rules. This, in turn, enhances operational efficiency, accelerates application processing times, and improves overall customer satisfaction.

Scalable loan origination systems can effortlessly accommodate growing transaction volumes without sacrificing performance or reliability. As loan portfolios expand, the system can seamlessly scale up to handle the increased workload, ensuring continued efficiency and service quality. Scalability is essential for financial institutions aiming to expand their operations geographically or diversify their product offerings. A scalable loan origination system provides the infrastructure to support growth initiatives without requiring significant upfront investment or system overhauls.

By investing in a scalable loan origination automation system, financial institutions future-proof their technology infrastructure against unexpected surges in demand or technological advancements. This ensures long-term viability and minimizes the need for disruptive system migrations or upgrades. Configurability and scalability are integral components of effective automated loan origination systems, enabling financial institutions to tailor their processes, adapt to changing regulatory environments, improve operational efficiency, and support sustainable growth.

Automation in Decisioning

Traditionally, the decisioning process was left up to individual underwriters, who decided which loans to fund based on data collected during origination. Automation doesn’t remove underwriters entirely 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 applied to decisions on applications so that they’re either automatically approved or denied, conditioned or restructured, 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 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?

Loan origination process automation should make a lender’s operations more efficient and improve customer experience. This involves automating tasks like data entry, risk assessments, and rules-based decisioning, reducing 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 processes should include options that allow humans to override them, especially when dealing with customers.

    Loan Origination Automation for Risk Management


    Credit risk can be mitigated, and asset quality can be preserved through effective risk management. By leveraging data analytics, credit scoring models, and risk-based pricing strategies, finance professionals can identify risky applicants, assess their repayment capacity, and structure auto loans accordingly. Developing successful and sound business strategies requires trusted sources of data and information.

    Automation plays an important role here. Automating the loan origination process should be a key step in augmenting their risk management solutions. During this initial phase, lenders gather the data that can best help them manage risk. Manual underwriting procedures follow a rules-based approach to evaluating risk, precisely what automated systems do.

    Automation seeks to minimize risks 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 & Funding


    Once a loan has been approved and funded, it requires close monitoring to manage risk appropriately. Modern loan origination platforms include automated funding services, which enable automated contracting and booking and improve the efficiency of documenting, booking, and dispersing funds. It’s important to get auto dealers their money as quickly as possible. That’s a big deal for indirect lenders. The dealers decide who to send the applications to — and if the lender isn’t funding loans quickly enough, they may not push their deals as much as another lender.

    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 consumer and market demand changes. A modern cloud-based, configurable system provides a competitive advantage in loan origination automation.

    In sum, an automated cloud-based LOS system should provide the following benefits:

    • A highly customizable solution
    • No-code configurability for workflows, rules, policies, features, the decision engine, and administrative functions
    • Efficient automated decisioning and funding
    • Quick implementation of business decisions during implementation and beyond
    • A modern user interface that personalizes navigation and takes user experience seriously
    • Support for complex pricing matrices and models
    • Application programming interfaces and the ability to build and modify integrations on the fly

    All of these features are available in defi SOLUTIONS’ single, self-configurable, highly stable, flexible, and reliable originations platform.

    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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