Home Finance 7 Reasons Why Lenders Need a Loan Management System

7 Reasons Why Lenders Need a Loan Management System

If you are a lender who wants to take your business to the next level, you need a loan management system that can meet your specific needs and goals.

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Reasons lenders use a loan management system
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What would your financial plans be like if you had a system to track your expenses? 

For many entrepreneurs, having a financial tracker cuts expenses and helps them save money. The same applies to lenders today, but now, the financial tracker is called a Loan Management System (LMS). “What is a loan management system?” you may ask. 

A loan management system (LMS) is software that helps lenders streamline and automate all loan processes from issuing to receiving. Lenders who use LMS enjoy greater efficiency, lower cost, high compliance, and customer satisfaction. 

First, let us go back to when the popular LMS, Infosys, shared how an American bank benefited from using LMS. 

CASE STUDY- The LMS, Infosys

The Infosys client is an American bank that offers banking and lending services for personal and commercial use. What story does this American bank have to tell about using an LMS? 

According to Infosys, the  American bank faced several loan-related challenges like poor scalability, poor server structure, and high upkeep costs. Fed up with challenges, the American bank opted for Infosys to provide new features to their loan system.

Infosys served as a loan portfolio management software that helped the bank to migrate to a modern loan system (. NET). Thanks to this, the bank experienced high processing speed, Low service downtime, more use cases, and lower cost of operation. 

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What can you expect to see in a loan management system? 

Let us begin by learning loan management system features and why you must use one. 

Feature of a Loan Management System

Client onboarding: 

This feature allows lenders to welcome new clients with simple steps like digital KYC verification, document upload, and e-signature features. Companies like SimpleNexus Mortgage Platform, Sofi, and LoanTracker work with this feature. 

Application scoring:

It allows lenders to approve loan applications swiftly and more accurately using data algorithms and analysis tools. 

Payment processing: 

This feature makes loan processes possible with automated reminders, receipts, and reconciliation functions.  

Reporting and analytics:

LMS stands out because it provides lenders with insights and feedback on their loan performance, portfolio, and risk using charts, and reports. 

 A loan management system is a must-have for any lender who wants to stay ahead and offer an ideal lending experience. Why? 

Follow along as we discuss seven powerful reasons why you need an LMS. 

7 Reasons Why Lenders Need an LMS

1. Improved Efficiency

LMS helps lenders to enjoy a loan management system workflow without errors. It helps lenders to track loans and ensure the payments are collected, accounted for, and reported. 

Also, it provides insights into how the loans perform from their pricing, circulation, and collection. Imagine that all you have to do is fund your account as a lender and relax while AI does the labor! 

Some loan management systems like “Credit Online” allow lenders to customize their loan report sheet. Upon customization, the LMS sends the report to the lenders after every successful loan transaction. 

2. Maximize Revenue

Would your business or personal investment succeed when borrowers fail to repay loans? No! 

While talking about this, we recall the report of the leading banks in the U.S. offering loans to consumers. In 2022, JP Morgan Chase and Bank of America recorded an outstanding loan portfolio in the United States. But here’s where it gets interesting! 

Despite the massive record of the loan portfolio, these two banks won the position of banks with the most total assets in 2023. How do they earn revenue and profit despite the large amount of loans issued out to clients? 

Loan management system! 

LMS helps lenders track and monitor their active loans in one platform, thus making it easy to detect pending funds. Most loan management systems allow users to use their LMS with other software, thus allowing multitasking. 

Thanks to AI(Artificial Intelligence), LMS works like an alarm system and notifies the lender when a loan payment is due and overdue. These steady reminders help the lender to find alternatives for faster payments from the borrower. 

3. Improved automation

The experience of the mobile money service provider, M-Pesa, is a great example to illustrate this. 

M-Pesa is a Kenya LMS powered by a platform, M-Shwari. Thanks to their automated loan management system, the borrowers are pre-assessed before a loan is issued. How so? 

The system, M-Shawri, uses many data sources such as phone history, transaction history, and credit scores, to know if the lender should issue a loan to the borrower. Also, it allows the lenders to receive their money through their M-Pesa account. 

The September report on commercial bank loans in the U.S. has something to add. Scrolling down, you will notice that the second quarter of 2023 has roughly 2.36% failed consumer loans in commercial banks. This failure was due to economic hardship, financial pressure on the borrowers, and late payment schedule.

Here’s some good news! 

Like the experience of M-Pesa, LMS now monitors borrowers to know if they can repay a loan when issued and weigh their financial capacity. 

What happens when about 20 work processes are reduced into one easy step? 

You will require less labor, less time, and less cost to achieve your work relating to loan management. This takes it to our fourth point. 

4. Save Cost

Loan servicing takes a lot of time due to the numerous processes involved. It requires a lot of labor and time to handle the process. A loan management system makes the process easy and streamlines it.

Popular companies like LeadSquared have benefited from using a loan management system. LeadSquared is a lending platform that helps lenders deliver loans faster, track payment, and manage loan collection. 

The positive reviews from their website show how they have helped companies achieve more results and efficiency. These results show how a loan management system can improve efficiency and profits for lenders.

5. Improve customer satisfaction

How would you feel if you were issued a loan within minutes of applying for one? No doubt, you would feel happy and relieved. 

Both borrowers and lenders are happy to use LMS because it requires low effort and uses a high speed. Some lending platforms like LeadSquared employ AI chatbots that attend to customer issues within minutes. It makes the process faster! 

Companies like Nucleus Software can relate to how their “FinnOne Neo” system benefits clients. According to Nucleus, their clients now enjoy a 40% decrease in loan processing time. It means that loans are processed and issued to their clients faster than before. 

LMS provides Insights to users and allows lenders to choose how they prefer their services. As a bonus feature, loan systems provide easy customer verification, disbursement, and collection. To crown it all, some LMS like “MoneyMe” offer a free interest rate calculator that helps lenders and borrowers calculate the interest on each loan. 

These features make the time spent on LMS enjoyable, and improve customer trust and loyalty! 

Therefore, a loan management system is helpful for lenders who want to improve customer satisfaction and grow their business.

6. Lower Risk of Loan Fraud

Some evil players may decide to use loans as an opportunity to outsmart lenders and steal funds issued to them. But this is not possible with an LMS in the picture. Thanks to AI-powered fraud detection, every borrower is studied using data like phone history, transaction history, etc. 

Additionally, borrowers must complete a verification process before they receive loans from lenders. This verification process must be approved before the borrower is eligible for loans.

Data sources like social media profiles, mobile phone records, e-commerce transactions, and utility bills are used by LMS to study the borrower’s financial behavior and capacity. As a result, lenders expand their customer base, reduce credit risk, and offer more competitive and inclusive loan products.

7. Data Security

How did we forget to mention the main benefit of an LMS to boost security? 

It is the wish of every lender to run smooth loan operations that are free from cyber attacks and breaches. LMS boosts data security and protects sensitive information from cyber threats. 

Data security is crucial for lenders, as they handle the personal data of borrowers, such as identity documents, credit scores, bank statements, and income proofs. A data breach or leak can result in legal, financial, and reputational damages for lenders and borrowers. How does this system work to achieve this? 

A loan management system uses advanced encryption, authentication protocols, and blockchain technology. 

Encryption methods ensure that the data is scrambled and unreadable by unauthorized parties, while authentication protocols verify the identity and access rights. Also, Blockchain technology provides a decentralized and immutable ledger of transactions, which prevents unverified access to loan data. 

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Conclusion

A loan management system is not just software but a strategic investment that can help lenders streamline their operations, improve customer service, and increase profits. 

Lenders can benefit from automated workflows, data security, risk management, compliance, reporting, and analytics. These features can enable lenders to offer faster, cheaper, and more flexible loans while reducing errors, fraud, and defaults. 

A loan management system also helps lenders adapt to the changing market conditions and customer needs and gain a competitive edge in the industry.

If you are a lender who wants to take your business to the next level, you need a loan management system that can meet your specific needs and goals.

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Naomi Ndukwe is a social media manager, blockchain content writer and a contributor at EntrepreneurBusinessBlog.com. Naomi covers the AI, web3, Fintech and digital technology categories of our blog. You can connect with her via email, [email protected].

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