What is a Loan Management System (LMS) – Benefits, Features, & More

The digital transformation of industries globally has benefited consumers and businesses alike. By giving businesses capabilities to offer better and quicker service, digitization has placed increasing emphasis on overall service delivery. This is especially true in customer-centric sectors like the consumer lending industry.

While loan origination was the first and most widely automated part of a loan’s lifecycle, loan servicing systems have also proven beneficial for lenders and their customers. Together, automating originations and servicing has created a more holistic solution for managing loans.

These loan management systems have done much to rid the industry of paper forms while removing the human element from areas prone to human error. Lenders have seen several benefits by replacing paper with digital solutions and automating portions of the lending process to reduce mistakes during the process.

Loan management software allows lenders to streamline the complex processes of managing loans from pre-application to the borrower’s final payment. The COVID pandemic accelerated the adoption of these new technologies within the lending industry. Besides replacing paper processes, these new loan management systems are also replacing many lenders’ legacy systems, as they can more easily combine all the complicated processes throughout a loan’s lifecycle into one software platform.

A loan management system allows banks, credit unions, captives, and other lenders to streamline the management of all their lending processes, thus reducing operational (and other) expenses. This advent of digital technology has made it possible for smaller consumer lenders to enter the industry. This technology has allowed many such lenders to identify niches for their portfolios, enabling them to make loans to those lacking significant traditional credit histories without increasing their risk exposure.

When it comes to loan management, systems generally are no longer on-premise solutions, as was the case with legacy lending software and the onsite servers that supported it. Instead of involving massive upfront investments, modern lending platforms use cloud-based servers. This offers lenders numerous benefits, including increased flexibility, scalability, and security, along with enabling easier compliance with regulations like those concerning the security and storage of customer data. Smart automation of processes through artificial intelligence (AI), data analytics featuring machine learning algorithms, almost limitless data storage in the cloud, software apps that improve user experience, and other technologies all have advanced lending software.

The days of paper applications and other documents are also coming to a close, as online applications and document storage done digitally support today’s digital loan management systems. Engaging and attracting customers through technology has become a requirement for consumer lenders eager to expand their portfolios. But with all the new loan management solutions available to lenders, it’s essential to understand the benefits they bring and the features they offer.

The benefits of using a loan management system are myriad. By replacing time-consuming traditional methods for verifying creditworthiness and financial data, these systems help lenders better monitor payments, streamline the application process, provide valuable insights, and choose the best rates for an approved loan. Management systems today automate much of a loan’s lifecycle while keeping a record for compliance purposes. 

Benefits of a modern loan management system include:

• Allowing lenders to check on the creditworthiness of applicants through analytics modeling of their recent economic behavior.
• Decreasing potential losses through AI technology by identifying scams and preventing the approval of loans to applicants who intentionally provide misinformation.
• Deploying digital loan management systems to enable smaller lenders without dedicated IT staff to employ, support and troubleshoot advanced technology without considerable upfront investment.
• Enabling borrowers to check their account status in real-time via easy-to-use interfaces with mobile options.
• Focusing on customer relations and new lending opportunities by a lender’s staff instead of manual processes gives a lender an advantage over their competitors who don’t.
• Increasing revenue by permitting lenders to automate processes to deal with more applications, along with funding and managing more loans.
• Largely eliminating human-based errors regarding decisioning by creating automated decision rules.
• Preventing payment delays by flagging fluctuations in creditworthiness during the application process by utilizing machine learning algorithms that predict behavior.
• Providing a better overall experience for customers by allowing access via automated dashboards to keep them better informed about their accounts.
• Saving time through the elimination of paperwork and manual processes.
• Storing all customer-supplied (and other) data in a vendor’s cloud servers that allows easy retrieval.

Technology inherent in lending platforms enables more accurate credit assessments, reducing the chance of late payments and defaults, along with the need for collection actions. It also allows lenders to offer better repayment terms and interest rates, minimizing risk while maximizing returns. Modern loan management platforms also permit lenders to take a more holistic view of their applicants’ creditworthiness, for example, by letting them use alternative credit data for those with limited or no traditional credit rating.

Scalability

Cloud-based loan management systems come equipped with tools that allow lenders to scale their businesses up and down. This enables them to grow their operations when times are good or scale back when indicators show economic trouble on the horizon. By allowing lenders to react quickly to changing circumstances, they can offer better service delivery to their customers. The ability to scale their operations also enables lenders to rapidly enter and cater to any needs in new or emerging markets.

Better Security

Digital loan management systems also offer more advanced security capabilities. Unlike legacy systems, where upgrades can often mean additional expenses, most cloud-based lending software is provided by vendors that charge a monthly fee. Along with installing and implementing a new loan management system, third-party providers of these platforms offer regular maintenance and automatic upgrades to a lender’s software package, along with bug fixes and the newest security patches. This ensures that the lender’s network and customer data remain secure.

When looking for software to help manage their loan portfolios, lenders should look for solutions that decrease their dependency on manual labor. As with other industries, digital solutions can dramatically reduce the chance of human error, leading to higher revenue. The right loan management system will allow lenders to expand their businesses without increasing risk while improving data security.

Automation

Automation can improve an array of mundane tasks that used to be done manually, increasing operational efficiency while decreasing turnaround times. A modern loan management system streamlines processes, accelerating the application and decisioning phases of originations by applying automated decision rules. This, in turn, lowers the chance of mistakes and increases customer satisfaction.

These loan management systems can also automate many accounting tasks like invoicing and even identify accounts in or about to go into default. Automation also helps lenders maintain financial documents for compliance and tax purposes. Ideally, a loan management system should allow lenders to customize which processes to automate, allowing changes to be easy when circumstances warrant.

Integration

Another area in which today’s loan management systems excel is their ability to integrate with software applications, including legacy systems and enterprise software. By integrating with other lending software, new insights can be gleaned from customer data. This allows lenders to target specific markets for their products, among other capabilities.

Integrated lending platforms provide a multi-faceted solution that can streamline:

• Credit assessments
• Funds disbursal
• Loan originations
• Onboarding of new customers
• Repayments
• Underwriting

One of the primary beneficiaries of integrated loan management systems involves a better experience for customers, significantly improving turnaround time for decisions along with general efficiency. By supporting third-party integrations, lenders can customize their software to meet their own needs and customers’ specific needs.

Integrations of any loan management system should allow lenders to connect instantly to credit bureaus and other entities that help establish creditworthiness. Modern lending platforms allow lenders to regularly receive updates to credit data so that they can leverage it via analytics software to glean insights into multiple aspects of their business operations. This provides an added layer of assessment with which they can establish the trustworthiness of loan applicants.

Analytics

AI and machine learning technologies paired with analytics software provide lenders with a powerful tool to easily develop new products and services, evaluate trends in specific markets and predict customer behavior. Analytics has become vital for any business that deals with vast amounts of data, which makes it particularly useful within the lending industry. Through reports that present insights from this data, lenders can take action to acquire more customers, better follow market trends, establish key performance indicators, identify bottlenecks in processes, and enhance productivity throughout their operations.

Accessibility & Responsiveness

Businesses are using financial technology (fintech) to make their products or services more accessible to their customers. This is especially important for customer-centric industries like consumer lending, where a customer’s experience has become increasingly important. By making their products more accessible and their businesses more responsive to the needs of their customers, lenders increase the likelihood that customers will return or provide positive word-of-mouth advertising.

This growing proliferation of lending software apps for smartphones and other mobile devices has made it easier for loan applicants and borrowers to better access lenders’ products. Cloud-based infrastructure supports fintech, enabling access via various operating systems and mobile devices. In contrast to the legacy loan management systems that use a siloed approach to data storage, modern fintech makes loan processing less labor-intensive.

For lenders looking to build their portfolios and better serve their customers, defi SOLUTIONS offers a complete loan management software platform that includes originations, managed servicing, accessibility via mobile devices, and capabilities to integrate with a wide variety of products.

defi offers solutions that include:

• A loan origination system that’s configurable, flexible, reliable, and scalable.
• Managed servicing of auto loans and leases through chatbots, conversational AI technology, virtual assistants, and other digitally-oriented interactions to offer the best user experience to lenders’ customers.
• Mobile solutions that allow customers to interact via any connected device so that customers can conduct business when and where they like. 
• Integrations with third-party vendors who supply software to assist with compliance, risk, payments, reporting, servicing, and vehicle valuations while connecting lenders with credit bureaus, alternative data, and other data sources.

In addition to the above technology, defi also offers a means to streamline servicing of lenders’ products throughout the lifecycle of a loan. By offering account administration, collateral and default management, customer care, and other services, defi seeks to provide holistic solutions for consumer lenders.

Our defi MANAGED SERVICING provides a single hub, digital interactions, and intelligent virtual assistants to bring everything together for you.

defi MANAGED SERVICING uses AI and Contact Center as a Service to boost operations and processes related to auto loans, leases, and leased vehicle dispositions, reducing budgetary expenses and improving customer service.

We offer you a choice of end-to-end auto loan servicing or à la carte services, such as loan and lease customer service, lease maturity management, remarketing, and backup servicing.