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HOW TO SELECT THE BEST LOAN SOFTWARE FOR CREDIT UNIONS

The defi Team defi INSIGHT, defi LOS

loan software for credit unions

Credit unions are experiencing a surge in auto lending. That was one of the pieces of good news for auto loans in the June Monthly Credit Union Estimates. According to CUNA Senior Economist Jordan van Rijn, “The June monthly estimates continue to show very strong auto loan growth: at the mid-year point, total auto loans grew 7.3%, an annual pace of 14.6%.” That trend reflects the improved pace of US car sales this year. The seasonally-adjusted sales rate for June was 17.47 million vehicles, up from the June 2017 sales pace of 16.72 million vehicles. Despite this positive trend many analysts remain pessimistic and expect 2018 car sales to finish below the 17 million mark for the year.  

Regardless of how the year ends, credit unions should prepare for an increasingly competitive auto lending market. Better-informed consumers, an eventual decline in auto sales, and the impact of fintech companies will create intense competition for bookings. If you find yourself anxious about the heightened competition and can’t remember when your current loan software was installed, read on.

To remain competitive, credit unions must invest in software built on the latest technologies. But among the many software offerings, how do you select the best loan software for credit unions? What capabilities will let you set the pace in credit union auto lending for years to come? Based on more than 20 years of experience and exclusive focus on the lending industry, we offer the following guidelines to help credit unions select the best loan software.     

Capabilities That Keep You Competitive

Technology is key to staying competitive in the auto lending market. As a result of the wealth of information available online, consumers have never been better informed regarding auto selection and lending options. Credit unions need to take advantage of four of the latest technology capabilities—cloud, configuration, integration, and analytics—to successfully respond to market dynamics and remain competitive and profitable.

If you’re concerned about continued support, product direction, future enhancements, and the costs of maintaining your legacy software, consider updating to modern loan software.

Cloud-based Loan Software  

Cloud technology is transforming the lending industry, making services available to a wider range of clients (anyone with internet access, web browser, or mobile device), lowering costs, and improving reliability.

In comparison to on-premises legacy loan software, cloud-based loan software saves time, both in quicker saves and application responses.

Cloud-based loan software easily (and economically) grows and shrinks along with your lending cycles. During high volumes, the system automatically adjusts to meet demand, providing the rapid response time you need. When your operations are chugging along and you need more capacity, cloud-based loan software can scale along with you.   

Cloud services are reliable. Providers like Amazon Web Services invest in data centers with redundant hardware, backup generators, and dedicated communication links. This infrastructure makes the loan software available when you need it. Many cloud service providers can deliver SLAs of at least 99.99% monthly uptime availability.

From an economic, operational, and reliability perspective, the new loan software for your credit union absolutely needs to be cloud-based.  

Configuration for Quick and Auditable Process Changes  

Your legacy loan software requires costly and time-consuming programming anytime you want to make a change to an existing process. Modern, cloud-based loan software replaces programming with configuration. Configuration lets knowledgeable, authorized business users make modifications themselves to accommodate necessary changes throughout the entire lending processes. Configuration allows you to:

  • Customize application forms and branding to match your unique lending services;  
  • Make modifications in response to federal and state regulations;
  • Adjust credit policies to reduce risk;
  • Integrate with new data services to improve speed and quality of credit decisions; and
  • Change the layout of an underwriting scorecard.

Modern loan management software provides configuration pages organized according to the major steps or activities in the lending cycle—from applications through servicing. Individual configuration pages guide you through the process. You make the changes by selecting, dragging, dropping, and entering values using the sections, data fields, formulas, and rules on those pages.

Configuration gives you complete control over who can make loan software changes. Role-based permissions and responsibilities assigned to individual users give them authority and controls over configuration changes, making clear which changes are allowable and which are not for any given user. Responsibilities can be assigned based on areas of expertise, such as compliance, underwriting, funding, or servicing. You can also configure integration with credit bureaus and alternative credit data sources, or establish decision rules to evaluate creditworthiness, automate deal structures, or determine who has override or exception authority.

 Configuration also supports your compliance initiatives. Configuration changes are automatically recorded in the system audit history. In the event you are subject to an audit, the configuration history provides evidence of the specific changes made to comply with regulations at that time.

Well-designed configuration capabilities allow credit union users to fine-tune nearly every aspect of the loan software. Rich configuration capabilities should enable you to transform out-of-the-box loan software to meet the specific needs of your credit union auto lending practice.

Pre-Integrated Data Sources and Services

Data providers such as Digital Matrix Systems, LexisNexis Risk Solutions, and PointPredictive now offer credit unions a wealth of additional consumer and financial information. The information these services provide can give a credit union a more detailed and accurate picture of an applicant’s financial position. In combination with traditional credit data, or separately, these data help credit unions make better-quality lending decisions, reduce risk and improve loan performance.

The best loan software for lenders will be pre-integrated with these data services. That saves the time and cost of major or custom integration. Configuration will let you choose the specific data services you want and the specific data fields you’ll use. Each data service has slightly different data field names and formats. Your software vendor should offer the capability to normalize the various fields and formats and present these fields consistently for use in a scorecard or in term calculations.

Pre-integrated data sources and services provide a powerful competitive advantage. They can extend credit to new market segments, identify fraud, reduce risk, and let you make better-quality lending decisions faster.

Analytics for Continuous Process Improvement

Analytics has become one of the most powerful capabilities in any data-driven industry. Auto lending is no exception. Modern loan software captures and creates a wealth of applicant, borrower, process, and portfolio data. The true value of that data is realized through analytics.

Credit unions benefit from analytics in two ways. First, you’ll want to monitor lending processes to identify potential bottlenecks, evaluate overall and individual productivity, and identify outliers that may indicate possible compliance issues. Detailed analysis of lending processes can report:

  • Average turnaround time for auto-approvals in the last week
  • Most productive underwriters during the month
  • Percentage of applications auto-declined in the last quarter
  • Number of overrides in the past month and reasons
  • Ranking of adverse action reasons to identify any potential disparate impact

Second, analyze the loan portfolio to uncover factors that positively and negatively influence its performance. Analysis of a loan portfolio can reveal:

  • Correlations between age, occupation, credit history, credit score, loan-to-value (LTV), make, or model that reliably predict delinquency or default.
  • Factors that influence profitability, giving you the opportunity to adjust or optimize them to continually improve profitability
  • Growth opportunities by comparing portfolio segments against one another to determine where the greatest opportunities can be found
  • Common attributes of borrowers 60 days delinquent and predicted probability of default  

The best loan software incorporates analytics as an integral component, not as a bolt-on product.  Tight integration makes it easy for business users to develop and run reports without the need to get technical with the underlying data schema and formats. That is a huge advantage for credit unions who typically do not have the luxury of a dedicated data analyst to do extensive analysis and reporting.

Select the Best Loan Software for You

If you’re still using legacy loan software, don’t delay in making the move to modern, cloud-based loan software. To obtain the greatest value from your investment, select loan software that is highly-configurable and can easily be modified to meet your lending needs. You need integration with a wide range of credit and consumer data sources and services to compete today and well into the future. No modern loan software is complete without analytics capabilities. Analytics lets you evaluate past efficiency, improve current efficiency, and optimize portfolio performance. Let cloud, configuration, integration, and analytics guide you to the best loan software for your credit union.

defi SOLUTIONS invites you to learn more about our loan software. We’ve applied more than 20 years of lending experience to develop  configurable, cloud-based solutions to help credit unions improve efficiency. The defi SOLUTIONS team welcomes the opportunity to discuss your needs. Contact our lending experts or schedule a demo now.

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