The Best Lease or Loan Origination Software: A Comparison for Auto Lenders

loan origination software comparison

Across most industries, software is assuming an ever-greater responsibility for making decisions that previously were made by experienced professionals. Algorithms, machine learning, and analytics process volumes of data to enhance efficiency and decision consistency.

These improvements are forcing every industry to evaluate the capabilities of their existing software portfolio. The lending industry is no exception. Recent advances in lending software (loan origination in particular) should prompt every lender to evaluate their current software’s capabilities. Let’s take a close look at a loan origination software comparison between an outdated legacy system and what systems are capable of today.

Lease or Loan Origination Software Comparison: The What and the Why

Modern lease or loan origination software offers a wide range of fintech functionality that provides greater implementation flexibility and lets lenders tailor the solution to their specific practices. Modern features have helped to improve outdated processes and systems in three critical ways, including:

Cloud-based Management vs. Legacy Systems

On-premises legacy systems have a lot of limitations, especially in the fast-paced auto lending industry. Basic system changes, as well as ongoing maintenance, are both cumbersome processes that reduce flexibility. They also require expensive in-house or contract expertise. Moving from on-premise servers running legacy software running on to cloud-based software can reduce CapEx and OpEx.

Cloud-based lease or loan origination software is hosted in data centers by cloud providers like Amazon. It reduces or eliminates the need to procure and maintain IT infrastructure. It’s quick to implement since your software vendor automatically provisions the resources. It’s scalable, so as loan volumes change, the software automatically scales up and down to meet the need. Cloud-based software is also high-performance software since cloud providers are constantly enhancing their IT infrastructure.

Configurability vs. Customizability

Customizable software is a major trend in lease or loan origination software and has been for awhile now, but until recently it came with pretty cumbersome limitations. Customization requires an experienced software engineer and making changes is a long process that makes it challenging to keep up with the industry.

Software configuration eliminates expensive, time-consuming, custom programming needed to transform out-of-the-box lending software into the solution that meets your needs. Configuration menus let lending professionals click, drag, drop, and enter their way to modifications in nearly every aspect of the LOS. With a configuration approach, lending professionals can make modifications by themselves in minutes, compared with the weeks it takes with legacy lending software.

Mobile Support vs. Desktop Only 

Many loan providers chose to opt for desktop-only services as they didn’t feel the ROI was worth the cost of developing an app. While that may have been true in the past, modern LOS providers offer easy mobile integration to serve a growing demand.

Mobile technologies have transformed consumer expectations of convenient business transactions. Younger users are born digital and live mobile. To remain competitive in the current lending environment, lease or loan origination software must support mobile applications. Look for mobile capabilities that allow you to:

  • Create the UI via a WYSIWYG for selecting forms, and arranging fields, images, buttons, and text prompts. 
  • Apply display logic to guide applicants through the loan application process.
  • Use custom drop-down menus, data masking, rules, and minimum/maximum values, to accurately capture applicant information.

How important is mobile loan application support? In our opinion, failure to do so virtually guarantees a decline in market share.

When making a lease or loan origination software comparison, cloud-based, configurable mobile-ready systems provide a competitive advantage for auto loan providers. They can get up and running faster while serving a better experience to clients. Another vital feature is automation, in that it helps to deliver enhanced decision-making abilities in shorter timeframes

Leveraging Automation in Loan Decision-Making

Automation significantly impacts a lender’s ability to increase efficiency, reduce loan origination costs, and improve decision quality. The breadth of automated functionality that can be incorporated into lending software continues to widen. When making a lease or loan origination software comparison, there are two key areas that require special attention:

Decision Rules

Rules drive automation by translating repetitive underwriting decisions—simple and complex—into “if, then, else” commands. Decision rules are easily configured. In a fraction of a second, rules replicate decisions that an underwriter may take minutes to execute. With hundreds to thousands of similar decisions being made daily, rules dramatically accelerate loan origination and bring consistency to lending decisions. Decisioning rules are also indispensable in helping lenders comply with regulations.

Auto Structuring

Auto structuring extends the concept of decision rules to provide fully-automated loan decisioning. For example, when a loan application fails credit policies, the auto structuring process reviews loan application attributes and iteratively modifies the terms with the goal of matching one or more credit policies.

Auto structuring can incrementally adjust interest rates, extend the loan term, stipulate a larger down payment, or recommend a more favorable PTI. When auto structuring arrives at a credit policy match, it initiates an approval or conditional approval. When it fails to find a match, it initiates an auto decline. Complex decisions like this could take an experienced underwriter fifteen or more minutes. With auto structuring, a decision is reached in seconds.

These features lay the groundwork for a robust, intuitive loan origination system for auto lenders—but they’re only part of the puzzle. The best system is only as good as the data behind it.

Supporting Streamlined Data Integration

The wealth of consumer data (courtesy of the internet and e-commerce), combined with the willingness of individual consumers to share financial information, can greatly improve lending decision confidence. Cloud-based solutions facilitate easy integration with lending data services as part of the loan origination process. Two common data integrations include: 

Alternative Credit Data

Trended Credit Data

Alternative credit data can include real estate ownership, driving records, bank accounts, rental records, and utility payment records like electricity, gas, water, and mobile phone. Compared with the standard credit data from the Big 3 bureaus, alternative credit data can provide a more complete picture of a borrower’s financial position.

Alternative credit data gives lenders greater confidence in loan decisioning and increases the probability of capturing deals that otherwise would have been declined.

Trended credit data provides up to 30 months of detailed payment history, including balances, minimum payment due, actual payments, and amounts past due. While bureau scores provide a snapshot of financial standing, trended credit data can reveal recent changes in financial behavior.

For example, a subprime applicant with an 18-month consistent payment history may be a better credit risk than their bureau score indicates. Meanwhile, an applicant with an excellent credit score and three late payments during the past year may be facing some financial hardships. Trended credit data gives lenders additional insight into an applicant’s current financial situation to support better quality lending decisions.

A combination of different data sources is critical for making better overall lending decisions. This information provides opportunities to leverage machine learning to verify statements and model risk.

Reducing Risk with Machine Learning

Misrepresentation of income or employment and outright identity theft are two of the most frequent fraud schemes associated with loan applications. Machine learning analysis of millions of loan applications, both legitimate and fraudulent, identifies obvious and hidden attributes indicating potential fraud. By applying machine learning algorithms to new loan applications at the “point of entry,” lenders can eliminate fraudulent applications that quickly become delinquencies and then defaults.

Credit and Risk Models

Most lenders have hundreds of credit models that have evolved and are constantly updated based on current and anticipated changes in the lending climate. The machine learning approach to credit and risk modeling uses application and portfolio data, bureau tradeline data, and alternative credit data. By analyzing your data, machine learning develops a single credit and risk model that evaluates applicant credentials to approve new loans, assign pricing based on your credit policy, or provide reasons when adverse action notices are required.

Functional Enhancement Options

On occasion, a lender may have a pressing need for software functionality that is not on the software vendor’s roadmap. Recognizing this need, some software vendors work with clients to address a fix. Functional enhancements are client-funded and typically developed within 30 to 60 days. The opportunity to fund enhancements can fast-track the functions you need for a competitive advantage.

Is It Time for a Lease or Loan Origination Software Comparison?

Fintech advancements in mobile applications, data resources, automation, and machine learning give lenders more efficient loan origination processes. If you’re struggling to maintain a competitive position in the current market, outdated lending software may be one of the reasons. A lease or loan origination software comparison of several vendors’ products could be the first step in regaining your competitive advantage.

Getting Started

defi SOLUTIONS  is a leading provider of loan origination solutions that incorporate the latest fintech capabilities. Take the first step toward improved lending efficiency and better decision quality by contacting our team today or registering for a demo of defi LOS.

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