How to build a loan management system?

In the financial sector, loan management or lending solutions have been the slowest when it comes to the adoption of digitalization.

Now, even though the lending institutions have migrated from excel sheets to a digital record book, they are still several steps behind from having a solution that would give a holistic view of their product performance, automate the loan processing stages, and gauge the loan return capabilities of an individual in real-time. 

To solve these gaps between a loan provider and complete digitalization, it is recommended to build a loan management system that is robust and easy to use.

As we go further into the article, we will look into what a loan management system software is, the benefits it offers, and the features that make it the answer to a redundant set of loan handling processes. Why should you read it? With digital transformation expanding at a lightning speed, the loan management system software market is witnessing global adoption.

More efficient and speedier than the legacy system, it is enabling lenders with streamlining and automation of the loan origination, processing, and end-to-end management.

What is a loan management system?

An enterprise loan management system is a digital platform that helps lenders in automating the loan handling processes, right from loan application to its closing. It enables credit unions, banks, payday lenders, mortgage lenders, and other financial institutions to gather and verify customer data faster, offer new loan products, manage the current products, calculate interest rates, measure the loan return capabilities of an individual, etc.

Moreover, these software comes with tools and technology sets that make the process of consumer lending easier by generating reports with detailed analytics and getting key insights a lot easier and more efficient for the lenders. 

Now that we have been talking about the benefits of the loan management system on a high level, let us deep dive into the advantages. Understanding the perks of the software can help you come to a spot where you would be able to answer the expectations part of how to build a loan management system.

Benefits of loan management system software

The advantages of an enterprise loan management system come through various facets. Let us dive into them.

1. Elimination of human error

In the lending ecosystem, there is a range of calculations involved. Calculations range from EMI percentage to loan disbursement amount depending on the individual’s credentials, and loan duration. These calculations can turn out to be error-prone when done manually in spreadsheets of outdated loan software.

A loan management system design is built for handling complex calculations and giving correct valuations in almost real-time. 

2. Saves time 

Managing a loan can be an extensive process, especially since there are a number of steps and lengthy due diligence involved in it. When you use loan management software, you are able to convert all the paperwork and manual tasks to a digital setup, which doesn’t just automate the routine processes but also helps the team dedicate their time to other business-focused activities.

3. Digital report generation 

Automating reports and bringing them to a real-time mode is a valuable feature of a loan management system design. In the lending sector, reports like accounting, invoices, and taxes are generally asked by investors, regulatory bodies, and investors. These reports, which typically have to be submitted in less time, have to be 100% accurate. Now, what these loan management software do is that they generate reports in preferred formats very speedily and with the guarantee of high accuracy.   

4. Gain competitive edge 

A loan processing software is able to help lenders process applications, assign and monitor more loans and have a complete look over them right from the loan application stage to its processing. All this with the guarantee of a hack and error-proof system.

With the software handling these activities, the product and IT teams are free to look at new loan product launches and better their customer relationships – giving them enough space to gain a competitive edge. 

5. Make lending easy 

The number of times an individual takes out a loan in their life is very limited. So, once they find a lending institute that makes the process easy for them, chances are that they would become their returning customers. Using a digitalized loan management software, businesses can make the application process easy, automate the credibility check, and automate the loan generation system – all to make disbursal faster. 

These benefits that a loan management system software offers are the doing of the feature set that the software comes packaged with. Another crucial aspect to know when learning how to build a loan management system.

Feature List to Build a Loan Management System

Lending systems are generally built to be scalable. Meaning, you can start with a simple functionality of AI-based KYC and then grow your software from there to a full-fledged loan management solution. However, when we talk about the minimum viable product (MVP) features of a full-fledged solution that meets all the regulatory compliances, it looks something like this – 

Loan origination 

It is the process where the borrowers apply for a loan, and the lender processes it. The feature sets that should be a part of this process are:

• Digital KYC
• Loan document software
• Credit history check 
• Provision of different loan types 
• Automation of loan application and processing
• Cloud infrastructure for loan availability and scalability

Loan servicing 

Every loan type is different; they come with different interest rates, payment durations, and due diligence measures. The servicing features of the loan management system enable lenders to calculate the interest, repayment duration, taxations, etc. It also includes sending out payment reminders, monthly statements, collection of payments, and collection of monthly payments. 

Debt collection 

Collecting the payment back is a crucial feature for any lending business. The loan management system software should be able to notify when the payments are due from the individual borrower, calculate the late fees, do tax calculations on the payment, and send payment reminders to the borrowers. You can also add third-party integrations in the software that would do auto-debit of the payment from the borrowers’ bank account. 

Reporting 

For a lending business, a reporting and analytics feature is needed to create reports on the basis of interactions with other businesses and individuals, look at the profitability of individual products, and the overall direction that your business has taken.

The one element that helps with building the reporting features is cloud integration. Through the cloud, remote sales personnel are able to access the reports and share them with ease. 

Deciding upon the features of a loan management system can become a bit easier when you know the business category you belong to. Let me explain it a little further. 

Startups – For small lending firms giving out loans in small quantities, a lending CRM can be useful. It will have a basic level of loan management features like interaction history, borrower management, analytics, team management, managing customer information, etc.

Middle-sized companies – They provide complex loans with a range of offerings and a dedicated customer portal. Through the portals, customers can get involved in the process by tracking the loan application process, payments, remaining repayment days, and even interacting with the lending firm. 

Large lenders –  Institutions like banks and private lenders address millions of borrowers. They don’t just need full-fledged loan software for private lenders or banks but also keep security as the center focus. So, at Appinventiv, when we perform financial software development, we ensure that we connect the software with platforms like LOS (Loan Origination System), Experian Hunter, NetBanking Connect, CIBIL, Perfios, PDF Statement Analyzer, etc.

With this, we have addressed another key element of how to build an LMS. Based on these features, there are a number of software that have come into the market, helping the borrowers be a part of an easy lending process. All the while becoming a name as the best loan management software. 

If you aspire to join the list of these best loan management software, it is imperative that you would need to know the cost of becoming one, on the technical side.

[Also Read: How Much Does it Cost to Build a Loan Lending App?]

How much does it cost to create a loan management system software?

The cost of partnering with an experienced financial software development company that has expertise in creating LMS can be anywhere around $60,000 and $80,000.

Let us look at the tabular view of these cost divisions.

THE AUTHOR

Sudeep Srivastava

Co-Founder and Director