Best Loan Servicing Software

Financing institutions like banks and private lending companies are the backbone of a strong economy. They offer financial aid to individuals to buy resources, services, and goods; and in return, they take interests or commission fees. Undoubtedly, loan servicing organizations’ efficient provisioning of credit helps individuals accomplish their personal goals like supporting business operations, paying college fees, buying a house, and paying medical bills. 

In order to survive the economic downfall and perform consistently, the loan servicers are seeking ways to reduce capital expenditures, control costs, improve service levels, and enhance operational efficiency.  Not only for their survival but for a thriving economy, it is essential these firms operate with a minimum delinquency rate and create a sustainable model. With the traditional loan servicing approach, it is impossible to identify the bottlenecks in the system and reduce the delinquency rate. For this reason, loan servicing organizations search for better alternatives like loan servicing software or loan management software. The loan servicing software with advanced technology aligns the process of loan repayment and identifies the gaps in the loan payment structure.    

The loan servicing software also aids the financing firms to perform their regular tasks efficiently like collecting payments, sending monthly payment statements, remitting funds to the note holder, loss mitigation, custodial account management, generating reports, etc.  All these activities involve lots of documentation, complex calculations, and a high level of intricacy. With the best loan servicing software, these tasks become relatively easy.     

For choosing the best loan servicing software, financing firms have to consider a myriad of things like loan capacity, company size, business requirement, scalability, and many other important aspects.  Well-research software can be a boon to the organization. This buyer guide for loan servicing software is designed to help various lending companies, banks, and financing firms to choose the right software for their business.

Loan servicing is a process where the lender collects interest, principal, and escrow payments from the loan borrower and carries out all the administrative work from the moment the loan amount is disbursed until the loan is paid off.  In short, during the loan servicing stage, the lender indulges in various activities like tracking loan payments, answering the borrower queries, managing the escrow account, tracking interest paid and principal amount, etc.

Loan servicing is envisioned as part of the loan cycle.  It can be rendered by the financial institution (banks) that issues the loans, a third-party vendor for the lending institution, or a non-bank entity specializing in loan servicing.  During the loan servicing, the borrower meets their amortization and interest payment. 

With the proliferation of the global economy, the volume of loan offerings has double-folded. It means more responsibilities on the loan servicer to manage the borrower’s profile and schedule amortization for timely payment. However, the traditional approach lags in managing the large volume of loan applications efficiently due to their underlying challenges.

• More documentation: Loan processing involves many verification and approval steps, which require submitting plenty of documents. It sometimes becomes a daunting task for lenders to manually manage all the documents and analyze them thoroughly with so many applications.
• Process time: Manual loan process can be a time-consuming and lengthy process.  The customer needs to collect the physical form, attached documents, and submit them to the loan approval officer.  If the loan is rejected due to a minor error, the entire process needs to be repeated. There is no system that alerts customers about the missing document or missing information when they initiate the loan application procedure with the manual process.
• Security and unauthorized access: It is the biggest risk associated with manual loan servicing. The documents collected from the customers hold their confidential information and their access to the wrong person can make them vulnerable. Also, the chances of misplacing the documents remain high with the manual loan process.
• Poor customer experience: For high customer retention, the financial institute should deliver the par customer experience. With manual loan processing, customers cannot track their loan status in real-time or expect to process the application fast.
• Higher error rate: No matter the amount of effort the financial institution puts into making the loan servicing process smooth, there is always room for error with human intervention. Manual errors can increase the loan denial rate, which can significantly affect the business revenue.    

Loan servicing software is a type of application software that is designed to manage and track loan activity. During the entire loan management cycle, the loan servicing software provides end-to-end functionality to efficiently manage the loan and reduce the loan repayments' complexity. It helps lenders to create different loan types, determine interest rates, set payment periods, calculate late payment fees, generate payments, and myriads of other activities.

• Finance companies
• Banks
• Third-party vendor for a lending institute
• In-house lenders
• Credit unions
• Mortgage companies

• Loan origination software:   Loan origination software helps the financial institutes and banks to automate the loan application process. It involves the processes that are carried out before the banks or financial institute issues a loan, like the pre-qualification process, application processing, underwriting, credit decision, etc.
• Loan servicing software: Loan servicing software is used for managing and automating the activities post loan origination process. Loan servicing software provides tools like payment calculation engine, reporting, accounting, etc., that are used to manage all the aspects of a loan from the time the loan is disbursed to the borrower until the loan is paid off.  Various loan servicing activities that are automated with the software include collecting monthly payments, maintaining payment records, sending monthly statements, sending late payment alerts, paying taxes, and insurance.

• Automatic reminders
• Create payment schedules
• Store documents
• Create loan documents
• E-payments (accept credit cards)
• Support multi-currency
• Calculate complex interest (APR calculation, compound interest, etc.)
• Support custom reports
• Generate important documents (statement, letters, invoices, and contracts)
• Time-stamped notes
• Support for mobile devices
• Alerts and Notifications
• Automated ACH payments
• Real-time reporting
• Scalable
• Data security
• 2-factor Authentication
• Data import and export
• Integration with an accounting system
• Track client communication
• Report and analytics
• Collateral tracking

• Reduce errors in calculations: The top loan servicing software allows users to calculate complex calculations with ease. The lender can have the flexibility to calculate simple and compound interest based on days or periods. They can even determine the payments cycle like monthly, quarterly, or yearly.
• Automatically deduct late payment charges: The lenders do not need to individually monitor every late payment transaction and manually apply late payment charges. The loan servicing software calculates late payment charges and deducts them from the account automatically.
• Flexibility in payments: The best loan servicing software solutions are intertwined with credit card payments and other online payment options. It helps borrowers to process payments from anywhere at any time. On top of that, the support for multiple currencies can make it easier for borrowers if they are traveling cross-border and want to make payment.     
• Reduce risk and bad debts: The loan management software manages all the customers’ information from a single platform, making it easier to gauge the customer’s payment lapse and commitments. These metrics eventually help to prevent bad debts. 
• Track payments: With loan servicing software, the lenders can keep a complete track of the borrower’s payments and reduce the friction between the lenders and borrowers. The lender can even use the payment record to decide on the loan approval when the same person is applying for a loan in the future.
• Better customer relationship: Loan servicing software holds valuable customer data, and they can use them to enhance the customer experience. Based on their previous record, lenders can encourage potential customers to avail more loans with reduced interest rates and discount offers. The users can maintain all their customers’ contact data in one place and can eliminate the need for dedicated CRM software. They can collaborate and build data sets covering investors, borrowers, co-borrowers, lenders, etc.
• Secure data management: Loan management system software gives secure access to customers’ data. It makes record-keeping easy and file storage secure.
• Keep customers updated: Automation is one of the salient features of loan management system software, and it helps automate many repetitive administrative tasks. The software users can set up email notifications and text alerts to notify customers automatically about the payment due date or their account's current status. The loan servicing software gives customers a sense of reliability as the software sends timely alerts and notifications about the loan status.
• Track previous communication: The top loan management system software helps track all communications with loan applicants and saves time searching email trails.
• Centralized system:  The centralized loan servicing system facilitates the fast processing of loans as all the necessary documents can be accessed from a single platform.

• Increase revenue: The loan servicing software offers payment options that are flexible to customers’ needs; it eventually helps lenders to improve the collection rate. Besides that, the best loan servicing software is also helpful in processing loan payments at a much lower cost and planning long-term revenue goals. Some loan servicing software is even capable of handling partial payments, late fees, amortization schedules, and escrow accounts, in the end, it all helps to increase the organization’s revenue.
• Minimum error in the calculation: The loan servicing software can process applications in bulk and faster than the traditional approach. With advanced technology, the software can calculate the exact amount of interest against the period of the loan tenure.
• Live amortization schedules: The best loan servicing solutions also provide features like live amortization schedules. It enables customers to view the interest rate and principal amount; besides that, it encourages the customer to pay the payment in advance. If the lenders are flexible with the payment, the borrower can choose to pay the lump-sum, interest-only, full amount, etc.
• Automatic audit trail: The automatic audit trail can track the changes made to loan files and give lenders important information about the gaps in the loan payment process.
• Reduce the risk of default loans: With all the reports and credit scores of the borrower available on the software dashboard, it helps to reduce the risk of default loans and revenue loss.
• Increase team productivity:  The automation feature of loan servicing software is capable of processing thousands of files at one go; this lessens the burden on employees analyzing the files manually and improves productivity.

• Check for hidden cost: It is always a good practice for finance companies to clarify with the software vendors if there are any extra charges or hidden charges. Some software vendors would charge for the training program or technical support.
• Mobile Access:  With the rising demand for mobile phones, it is essential that the client have mobile access to their loan servicing application. 
• Scalable: The loan servicing software should be scalable and easily configured to meet all future needs. The loan servicing software cost may rise as it scales up.
• Efficient workflow: The loan servicing software that has efficient workflow and allows users to connect various loan processes with ease has a greater value than the software with poor workflow. An easy workflow can also help in minimizing risks and enhancing operational efficiencies.
• Seamless Integration: The emerging trend of online business has also influenced the financing business.  It has a more client base and more loans to handle; the loan servicing software should gel well with the new business model.
• Reporting capabilities: Robust reporting capabilities of loan servicing software give financing firms a clear view of their performance in terms of revenue. It even helps in identifying the gaps in administrative work.
• Security and regulatory compliances: Before finalizing the loan servicing solutions, the users should ensure the software meets all the regulatory compliances and is backed with necessary security features. The software should allow users to decide who can access and view reports or user activities.
• Customized credit scoring: For risk-free lending, customized credit scoring is one of the important loan servicing software features. The customized credit scoring feature can give users the flexibility to adjust or set the credit scoring parameters as per their business standards. It enhances their capabilities to evaluate borrowers more accurately.
• Pricing: Pricing is a critical factor for any business owner planning to board software for their organization. Loan servicing software can come in various price ranges, but business owners have to verify which loan servicing software costs them minimum and has a high ROI.

The above parameters can guide software seekers in the process of selecting the best loan servicing software. The ideal way is to refer to GoodFirms’ list of best loan servicing software where users can also compare loan servicing software features to shortlist the tool.

Yes, it is safe to use SAAS-based loan servicing software.

The SAAS-based loan servicing software can work well in situations where organizations plan to reduce their workload and cost of maintaining the in-house IT infrastructure.  However, security is the key concern for software users, especially when it involves storing customers’ financial information.  But SAAS based loan servicing solutions are very secure to use, and the software vendor ensures that their processors operate in a secure environment and are PCI compliant.

The modern-day SAAS software solutions are protected with high-security features like encrypted data, DLP (data loss prevention), role-based access, behavioral analytics, real-time threat intelligence, CASBs (cloud access security brokers), etc. With all these security measures working together, it almost becomes impossible for hackers to hack the system, and users can avail of the entire loan servicing software features with ease.

• Micros services: Microservices applications are reliable, scalable, and flexible. These properties of microservices help financial services to inculcate new features or changes in their services without affecting other modules. In the future, financial services could see applications built more on micro-services.
• ML and AI:  The AI's ability to process a large volume of data in a fraction of seconds has increased the loan processing speed and helped financial organizations reduce operational costs.  For now, the technology is limited in its analyzing capabilities, but in the future, it can be used for analyzing data outside the loan application process, including social media, to enhance the credit decision process.
• Collaboration between Fintech and software development companies: In the coming days, there would be more collaboration between financial institutes and software development companies. The partnership means the financial institution can have immediate access to the latest technology and add more power to their services. Besides that, the concept of multiplayer connected finance can link different accounts of lenders and makes the lending process easy.
• Blockchain technology:  Blockchain technology has created a buzz among many industries due to its decentralized system, especially the financing institutes. The blockchain’s distributed ledger and encrypted database make the platform the most secure system for financial transactions. It not only helps to conduct financial transactions securely but also to create contracts that can be used to create a loan agreement between borrower and lender.
• Self-serving capabilities: The future lending software that is completely self-served automated and does not require any human intervention could become a reality.

The Loan Servicing Software price may vary based on the size of the business, type of loan, budget, customization options, and business-specific needs. The users or lenders can either choose a dedicated loan servicing system or an enterprise loan servicing system bundled with other services like loan origination system, CRM management, decision management system, etc. The users can avail of loan servicing software benefits either by deploying the software on-premise or on the cloud.

Loan Servicing Software For Start-ups and Small Scale Finance Companies: A loan servicing system like Captaloans with a starting price of $21/month can be a fair deal for start-ups and small-scale finance companies who do not want to overspend on their budget.  The other alternative that users can consider is Trakker, with a starting price of $3995/one time.  The Trakker tool has an affordable price tag and some exclusive features like free technical support and free training programs. The other tools that drive lenders’ attention include La Pro, Loan servicing soft, Fundingo, and Apache Fineract.

Loan Servicing Software For Large and Medium Scale Finance Companies:  The mid-range loan servicing solutions like Lending Pro Software can be ideal for medium and large-sized organizations. The software comes for a starting price of $395/one-time covering all basic features and is capable of managing 20 loan accounts at once.  The tool offers a 30-day money-back guarantee and can be scaled up as per requirements. The price may go up to $1995/one-time cost for a higher version and is efficient enough to fulfill the large enterprise needs. Another popular tool that provides end-to-end loan servicing functionality and drives attention due to its ease of usability is TurnKey Lender. The starting price of the Turnkey Lender software is $500, which may exceed based on features and business requirements. The premium tool is highly customizable and backed with advanced features. Besides that, the TurnKey API allows easy integration with other supporting tools and lending systems. The other loan servicing tools that can deliver quality-level services include Nortridge, AutoPal, Lendstream, and Margill.

Free and Open Source Loan Servicing Software: Free and open-source loan servicing software are great options for anyone right from small startups to large organizations. The free version allows the users to test the software and the open-source option allows customization of the codes. With free and open source loan servicing software, users can derive the best value with minimum or zero investment.

GoodFirms is rated as the top review and rating platform for IT solutions helping consumers to filter the best software solution for their company.  The GoodFirm’s team adhering to the transparent review process ensures that the product is listed based on their service quality, features, and customer support. GoodFirms make all the effort to see that the customer gets the best product for their organization.

Loan management is one of the critical aspects of the survival of a financial institution.  An efficient loan management system can fasten up the loan process and safeguard the financial institution from bad debt risk. If you are dealing with a loan servicing business, then you should look at the list of top loan servicing software.