Understanding End-to-end Loan Origination Benefits

Loan Origination Systems can be integrated with Systems for Credit Monitoring and Audits

It takes 35-40 days for a bank to process a loan on any given day. This can be devastating when dealing with emergencies or can affect fund-driven businesses ghastly.


However, things have eased off in the recent past. Several initiatives and changes in banks’ policies have narrowed down the hassles. More importantly, wider adoption of critical loan systems like the Loan Origination System has transformed how the industry previously worked.


So What Exactly is Loan Origination System (LOS)?


Before we dive into the details of LOS, we need to understand what borrowing looks like. An application goes through a series of checkpoints before finally being granted or rejected. The application can get rejected at any stage, making it cumbersome for banks to track hundreds of thousands of applications at any point in time. This is where LOS comes to play.


LOS as a software solution manages the entire loan dispersal cycle. However, LOSs differ from one another. For instance, the requirements of a mortgage differ vastly from a personal loan and hence the LOSs differ from one another.


The software may assist further with tracking payments being a part of it.


Stages of Loan Origination


The stages of loan origination can be categorized into several broad aspects as the needs differ with banks. However, the initial stages play a crucial role in user experience and hence could not be ignored at all costs.


The standardized stages of loan origination are as follows:

  • Pre-qualification

  • Application

  • Application Processing

  • Underwriting

  • Credit Decision

  • Quality Check

  • Funding

Pre-qualification

The basic step with which the loan origination process starts is the pre-screening step. The borrower introduces itself to the bank and submits crucial details to verify the authenticity. The step could be carried out in both manuals as well as automated systems. Automated systems save both time and money in such scenarios.

Application


The next step in the journey is called the application stage. In this stage, the applicant dives deeper and shares relevant information such as any existing loans, assets, and business functionalities to the banks. Traditionally, the process used to be a labor-intensive process; however, with the advent of LOSs, the cost and time have trickled down dramatically.


Application Processing


Post submission of details, the banks go through critical stages where the information is verified, and the decision of the application is made. It is often a time-consuming process that may end up with months of prolonged verification. On the other hand, the bank may call for missing or any additional records for processing the loan application.


Underwriting


Next comes the underwriting stage, in which banks decide the financial viability of lending out the loan. Further, the bank decides how much amount could be allocated using different scoring mechanisms such as credit scores, outstanding loans, risk scores, etc. Finally, the Loan Origination Systems take care of the figures.


Credit Decision


The result of underwriting is the credit decision. In this stage, the bank decides whether to loan or not. Again, automated, AI-powered, and data-driven systems simplify the entire process within a few minutes.


Quality Check


The lending business is highly regulated, so banks ensure error-free transactions. The lender validates the internal and external regulations at this stage one more time before lending out the sum.


Funding


Post all the stages; the sum is lent to the borrower. Most processes end here; however, a few additional steps may be witnessed when dealing with loans against property or business.


Concluding Remarks


While the entire process may end with a month-long affair, the automated systems make it simpler and faster. Moreover, Loan Origination Systems can be customized as per the individual needs of the banks and hence could not be ignored at all costs.