Best Practices for Selecting the Right Loan Servicing Software

Updated on :June 16, 2024
By :Manisha Yadav

How are you going to make sure that a loan servicing software addresses all your loan origination demands, your accounting needs, and administrative functions? How is it going to help you get compliant according to today’s industry and market?

Making the right choice of the best loan servicing software is going to depend on a lot of factors, both internal and external. These will govern the best practices that should be followed to make that decision in the first place.

Business Requirements – The Primary And All Encompassing Internal Factor

For this, you will need to conduct a needs-gap analysis. This way, one can easily prioritize the purpose and the most important features of loan servicing software for private lenders. It is not just about aptly servicing your loan portfolios but choosing something that works well with your existing system. It all boils down to the various products you are offering. It could be variable loans, to roll out flexible repayment options or partial payments or custom payment schedules and the like.

Also, you need to consider the number of loans you are currently servicing. It could be 10, it could be 10,000, but the point is the app should be adaptable to the many changes that might happen in your business in the coming time. For this, you need to define your business goals and processes clearly.

The Front End Luring Trick – Defining User Requirements

How can your users use your loan management app or software? This is where you are going to switch shoes with your users and observe how they respond to the final interface and dashboard of the app. Here you will need to get your PR and marketing department onboard and make efforts to know your audience better.

Keep in mind that each and every one of your users is going to have distinct needs and this necessitates gathering requirements from everyone right from the top management to loan servicers. 

Get the technical team on your side and then get your finance team on the call for their input. Their purpose for using the app might be different from one another. Some might want excellent reporting capabilities, while others might seek ease in data entry and some other employees of yours might be very interested to know how the app lets them compare different loans on offer. All these different needs should be considered.

Don’t Go Out Of Your Pocket!

You are not going to stretch your budget more than you can afford to. Picking the right loan processing software entails you knowing your financial limits well. A software, whether it is native to your users or SAAS (we will get to that later), has to be well within your budget. You are advised not to waste precious time looking at or evaluating products that don’t fit within your wallet seams. Make room for: 

  • Software costs
  • Hardware costs
  • Software implementation costs
  • Employee and/ or user training costs
  • Conversion costs (your current data will be converted/transferred into the new system) 

The most critical aspect of costing is that you need to make sure that all your functional requirements are well covered in the base price. We haven’t even counted the costs you may incur for additional modules and upgrades or any indirect costs such as for special add-ons and features and the like.

A Thorough Cost Analysis Is Going To Be In Tow Here If You Want Upgrades Coming In Regularly! Ask Yourself These Questions before Spending On Upgrades

  • The added feature that may cost more should enhance the user-experience
  • It should increase the app’s efficiency
  • Is it capable enough to reduce your manual operations to a required minimum?
  • Is the newly added automation/ feature reliable in the long run?
  • You will also have to inquire about the potential increase in loan generating capabilities of the app after the added feature is enabled
  • Make sure the added feature or upgrade doesn’t affect the integrity of your system

What About Your Short And Long-Term Needs?

 Of course, your business is looking to achieve some short term and long term goals. A lending or loan tracking software solution could be helpful in enabling you to achieve these goals, but only when you have room for it in your strategy, and it fits well with your business objectives. Analyze your current technologies and software packages to understand the software and technology gap you might be heading towards in the future. 

You will need to determine the following before you pick a software:

  • Who is your primary user?
  • How responsive and well attuned to change are your hands-on managers?
  • What all goes into originating and servicing accounts?
  • How well is your current software able to support your current needs?
  • Could a new feature or a new package or platform be more efficient?
  • Is more automation always better?
  • Should you aim for better credit scoring capabilities?
  • Who are all in your organization going to need better reporting features in the future?
  • Maybe you have several software platforms interlinked together for more cost-efficiency. Would you be interested in opting for a single comprehensive package instead?
  • If not, does your current software align with your long-term business goals?
  • Which features are going to improve efficiencies and credit decisions?
  • Does your existing infrastructure allow for additional functionality? 

This is a lot, but it’s still not it. There is no rule set in stone that you will need to follow when picking the right lending software for your business. These best practices are very common, and everyone who is looking to automate their money lending business should consider them but then each to his own, right? And they will keep on changing with time as your business grows and evolves. Also, what might be suitable for one might not be for others, so do keep that in mind as well.

What Will Be The Many Features Of Your Loan Servicing Software Once You Are Done Deciding Upon These Practices?

Everybody Is On The Cloud, Should You Be Too?

Is your loan servicing software/app cloud-based or on-premises? This is a big question here, and you can get it answered depending upon the size of your organization. If you are a small to a mid-scale company, you probably haven’t been able to set up a dedicated IT department yet. Whereas a large-scale company is fully capable of handling an advanced lending software program provided, they have invested enough time and resources in developing an IT cell or division. 

This means that in the former case, you will find a strong reason to pick SAAS (Software-as-a-Service) when it comes to picking the right loan management and servicing software.

  • It’s relatively easier to deploy and use and also very much affordable as compared to on-premises programs. Interestingly, it can be totally managed by you.
  • These will be hosted from a remote, cloud location and will also include robust back-up systems along with high-level cyber security.
  • When you subscribe to these services, you will be given access to their advanced features and functionalities as well, and that means you will also get regular maintenance, troubleshooting, and software upgrades.
  • You will be kept updated on new product releases and customer service support and needless to mention it will eliminate the need to have your own IT department.

An On-Premises Loan Tracking Software, On The Other Hand, Has Its Own   Advantages As Well

  • The level of control you get with these is unmatched and their deployment is typically faster, and works best for larger lending groups.
  • If you have a dedicated IT department to manage cyber security issues, it is perfect for you.
  • Moreover, if your IT department is able to ensure 24/7 uptime, that will be the icing on top.
  • If your databases are complementary to the loan management/lending software you are looking to create or if you prefer to maintain your systems behind your own proprietary firewall, choosing an on-premise loan management software program will be ideal for you.

Automation and Its Many Uses in a Loan Processing Software

When you want to increase revenues and profits, you want the best for your organization and the right processes that reduce costs and time taken to perform operations, and this means you will have to take full advantage of automation. Let’s just dive in straight to the many tasks that should be automated without any delay or second thought:

  • Loan origination
  • Loan servicing
  • Product evaluation
  • Client assessment
  • Risk analysis
  • Fast auto-population of numerous data fields
  • Simplified application submission
  • Credit scoring
  • Non-traditional credit scoring methods for borrowers with thin credit 

And this is just the beginning! 

Some Very Basic Features Include;

  • Easy to deploy
  • Ease of learning
  • Seamless integration with all third-party vendors
  • Well-designed workflow
  • Training screens
  • 24/7 technology support
  • Variety of communication channels for troubleshooting such as online chat, live help desk, email, and online Q&A

Some Typical Key Features at a Glance

  • A carefully designed Loan Product Suite where you can showcase the different types of loans you are offering
  • Rephasement (Bank oriented)
  • Reschedule activity
  • Easy end-to-end loan management functionality
  • NPA Management
  • SMA (Special Mention Account) analysis
  • Easy provisions for Write off / Wave off
  • Simple settlement of account through various channels
  • Easily configurable credit monitoring activity
  • Customizable dashboards
  • Alert management
  • Collateral Setup
  • Recovery Appropriation Policy
  • Interest & Changes Structure 

How Does Lender Experience Matter? 

Yes! It is, and we are not going to argue against it, but we aren’t going to let you sacrifice on operational efficiencies for the user either. Now we all know that there isn’t one particular feature that a user or a company is going to look for in a mortgage loan software solution. You are already aware of some really interesting and most valued borrower-facing features, but what about the features that are most valued from the perspective of the lender? Let’s have a look at them here:

Optimize Your Offerings

When you have your eyes on them, you are able to optimize your offerings the way you want. The only option is to balance your borrowers’ needs with those of yours as a lender and simplify your operational tasks and streamline all your processes. This is precisely the best way to create a well-balanced system that supports your back-end operations and offers an extraordinary front-end experience as well. 

Loan Origination Made Easy

When your software has loan origination capabilities, you can create various types of loans and similar products that are based on different combinations of interest rates, payment options, and methods, and service fees.

When You Want Seamless Client Management

This is where you want all your clients to have a strong credit score and awesome reputation when it comes to repayment of the loan. Not that this feature is going to do that, but it will for sure, enable you to perform credit checks on them and help you assess their viability as potential borrowers. You can use it as a customer relationship management tool as well by recording valuable client notes and their contact info.

Analytics Dashboard, Do We Need One?

Yes, we do because this dashboard is going to highlight the key metrics that you will monitor. You can get useful info and insights into your operations in the form of charts, diagrams, and other infographics. 

Let’s get a bit deeper into this aspect of loan servicing software for private lenders and look at all the functionalities we will need: 

  • Decision-making should be automated
  • Regular and fast borrower evaluation cycle
  • Automated calculation of loan amount, loan term, and interest rate and the like
  • Customer risk assessment/ segmentation
  • Lender’s credit rules inclusion and management
  • Automated changes and updates in credit policies and scoring models
  • Remote access
  • Ability to set up individual evaluation processes for your entire product portfolio and its different products/ offerings, segments and business lines
  • Evaluation of loan origination processes
  • Assessment of the software system’s performance and staff productivity
  • Highly customized tracking and reporting functionalities 

And phew!

Again this is not it you know? And we haven’t yet got to the many advantages of using these apps!

Following Are the Many Advantages of Using a Loan Servicing Software 

You Can Instantly Reduce Calculation Errors

Human calculations are prone to errors, and we all know that. And this is exactly the very first benefit of automation. You can say goodbye to computational errors for good because these softwares bring in the machine element to your operations. Some errors can prove to be very expensive for your business but can be easily managed by a reliable and easily deployable software solution. 

Despite the fact that you have a highly qualified team, you may experience human error in too many variables, but fortunately for you, it is easy for a software system to overcome this one shortcoming.

Your Chances of Risk and Bad Debts Can Be Downsized

It really hurts when you have to label a debtor as “bad” in your balance sheet. These little red crosses that you have made in your previous year’s financial statements do not look good in the least. If you not able to collect the funds that are due to you because of any reason, it is time to use a loan servicing software right now. Many companies suffer from this major hurdle and eventually end up losing a lot of cash as bad debts. However, by using a loan servicing software solution, it becomes easier to identify critical situations where there is a higher probability of losing funds. 

Does this allow you to prepare an action plan for the situation in order to get ready for the blow? Not exactly! This way, you can respond to it before those potentially insolvent individuals or delinquent accounts become totally useless, and the payments accruing to you from them can’t be recovered. This software saves you a lot of time and resources, and this reflects positively in your annual cost reduction goals. It helps you regulate your cash flow and also allows you to track the location and source of your money. You can very efficiently set payment schedules and also prevent delays in payments by constantly being alert and notifying your borrowers.

Save More of Your Team’s Time

There is a reduction in manual effort, and that means no more redundancy of operations and no more duplication of effort. Automation of some manual tasks becomes really critical to the success after a point of time. Your business might be standing on an impasse right now from where the next step or the right direction becomes very vague or difficult to figure out. You could be in a financial rut or in a position where unpaid, partial, or late payments affect you more than before they ever did. This creates an urgency for you to track your debtors and produce notices to customers in default. You can even charge them fees, recalculate modified payment schedules, and perform a lot of other tasks to save more of your valuable time.

A robust loan management software solution efficiently acts as a support tool for your company and can simplify many aspects of your day-to-day work. This further allows your team to concentrate their efforts on more important tasks. Loan management automation tools let you process hundreds of thousands of files in a fraction of the time you would spend to do the same task manually. Automation of these processes is even more essential when data quantity is significant, and the information is sensitive. In such cases, you need speed, accuracy, and flexibility, which are a given in a loan servicing software. 

Reduced Time in Creating Accounting Reports and Other Financial Statements

No more drawing columns and creating tables on your desktop. Bid adios to manual monitoring of loans and jotting down the details of the accounts yourself. Loan servicing apps and software solutions are here to create and generate the right accounting reports, invoices and statements, and other financial records for all your borrowers and investors. 

When you find it heavy and taxing to extract critical data in real-time to create reports at the time of reporting, a quality loan management software system proves to be very helpful. You can ensure the accuracy of data, and you can customize the kind of reports you want to create. You can choose from hundreds of fields and simplify the reporting processes by then exporting them into a wide number of formats. If you seek to generate more advanced and in-depth statistical reports, you can do that too. 

What If You Could Optimize Your Revenue?

It is a very incredible way to optimize your business and its revenues. When all your functions are simplified, and when it becomes possible to track outstanding loans accurately, identify risks on time, and manage unusual financial situations quickly, your teamwork becomes more synchronized, and this reflects positively in your revenues. You are able to receive payments faster because of a robust loan servicing software and thanks to its monitoring feature, you can follow-up and collect your payments with ease.

Final Thoughts

A few points mentioned here are sure to push you into the next level of the understanding of loan servicing. And this small change is likely to help you save thousands the next time you think of seeking a loan.

Moreover, when you are seeking a more valid and a reliable method of revenue projection for your short, medium, and long-term projects and business goals, you can do that too without any additional costs. You can easily predict your cash flow, which helps you in strategizing and devising actionable plans to optimize your income. And it all boils down to increasing your income and profits in the end, doesn’t it? So if you are looking to do that, why not invest in a highly suitable loan servicing software solution today? Nortridge, AutoPal, Margill, Turnkey Lender LoanDynamix are some of the loan software solutions listed by GoodFirms.

Manisha Yadav
Manisha Yadav

Manisha Yadav is Director of Zapbuild. She is an accomplished writer & also functions as the Chief Business Analyst for the company.  As the Head of Business Development, she is in charge of all analytical functions & formulating marketing strategies. 

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