Leveraging modern technologies and made our day-to-day life easy and frictionless. Our banking too has become effortless, right from opening an account to making money transfers through mobile. Today, a high volume of banking activities can be achieved with greater efficiency.
With everything being automated and quick, loan origination process is now moving from manual operations to digital platforms. P2P lending and crowdfunding are amongst the top examples of wonders of technology in the lending sector.
Before moving towards the benefits of modern-day technologies in the loan origination processes, let’s first have a look at the traditional loan origination process. Furthermore, let us also assess the challenges and shortcomings faced by both lenders and borrowers.
Traditional loan origination process
There are usually six steps in the process which are mentioned below.
- Pre-qualification – Screening of the customer’s finances and current debts. During this step, the borrower needs to put the required documents to the lender.
- Loan Application – The request of the loan with the amount and purpose is filed by the borrower.
- Application processing – Proper file reviews are conducted by lenders to check the authenticity of the customer.
- Underwriting process – When the application process is deemed complete, lenders assess a variety of components such as credit score and risk scores to identify the creditworthiness of the applicant.
- Loan decision – Depending on the underwriting process, the loan is either approved or rejected.
- Quality control – A double check is done to ensure everything is tested based on the rules and regulations.
- Loan funding – The lender provides the said loan amount against the collateral.
Shortcomings and challenges
While this process is being continued since ages, it involves a lot of arduous paperwork and manual screenings which could be stressful for both the parties. Another major issue with the traditional method is the extensive time taken during the process.
The complete process can take up to 2-3 weeks of time although the duration varies upon the loan amount, documents, credit score, and other crucial factors.
After all this time and efforts, the traditional loan origination process is vulnerable to errors and malpractices. Hence there has always been a need for an effective solution that abolishes these challenges and makes the process smooth and automated.
How is technology reshaping the loan origination process?
An advanced loan origination process that embraces modern technologies has distinct advantages over traditional processes. Using artificial intelligence, machine learning, cloud, and other technologies provide superior lending experience and reduce the arduous paperwork.
Here are some of the core benefits that a modern loan origination system can provide to lenders and borrowers.
It removes the hassles of maintaining files and folders of every customer. Instead, everything can be recorded and managed through software that provides a seamless view of data and reports.
Faster and accurate decisions
Regardless of the amount of the loan, it offers more accurate and faster decision-making solutions. It enables the lenders to filter out undesirable customers ensuring risk-free lending.
Customized credit scoring
Earlier, all lending businesses have to rely on third-party companies for credit scores. Lenders today, can now avail benefits of rule-based credit scoring for accurate analysis of the borrowers.
Minimized human intervention
With the use of emerging technologies like AI, ML, and blockchain, loan origination process has become faster, secure and more automated.
Reducing the time duration
Traditional processes are a lot slower in comparison to the modern ones. Today, a borrower can get a loan from a lending platform in approximately 2-3 days.
While the advent of technologies like blockchain and machine learning is still in its infancy, what is clear for now is the capabilities these technologies boast in the lending sector. Moreover, these technologies have also opened the way for new business opportunities for the lenders. People in the lending sector must consider implementing modern-day technologies to stay ahead and relevant in the market.