How Automated Loan Decisioning Is Helpful for Lenders

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Automated Loan Decisioning

Depending on their size and the state of the economy, various financial institutions receive hundreds of applications daily. A lending staff is responsible for reviewing these loan documents to determine who may be a good candidate.

A loan application contains a variety of financial details that reflect the applicant’s creditworthiness and credit risk. Managing the entirety of the loan process manually is arduous and time-consuming. In reality, this method is not feasible for most financial institutions, at least in the early stages of the decision-making process.

Automated loan decisioning intelligence can be beneficial, but is it the optimal strategy for a lending company’s customer management procedure?

What Is Automated Loan Decisioning

It uses a loan processing algorithm based on the current decisioning engine technology and cloud to digitize and streamline the loan application process. In addition, the software provides automated decision-making capabilities that reduce paperwork, save time, and, ideally, reduce human error.

Lenders, such as credit unions and banks, can customize the parameters loan applications must meet to advance to the next process phase. With the engine’s automated solutions, applications can be reviewed and considered with incredible speed and precision. This increase in efficiency allows potential borrowers who qualify to be forwarded to the underwriter and the human judgment phase.

The Benefits of Automated Loan Decisioning

When implemented correctly, automated loan decisioning software can provide credit unions with numerous advantages, including:

  • Increased productivity through improved document management and tracking
  • accelerated processing and decision making
  • Improved relationships between team members
  • Reduced insurance premiums
  • More time for staff to devote to other administrative duties.
  • Enhanced authorizations and captures
  • More customized customer service

By analyzing data sources to a greater depth than is possible for an underwriter, loan decisioning can also assist in mitigating risk.

NCUA identifies seven interdependent risk categories for lending. Credit risk, liquidity risk, interest rate risk, transaction risk, compliance risk, reputation risk, and strategic risk are a few examples.

Credit Risk

As there is no initial human intervention in an automated lending process, the likelihood of error is greatly reduced. This improves effectiveness and efficiency and reduces the lending company’s credit risk exposure.

With automation, lending companies can track and monitor loans and applicants more effectively. With automated solutions, banks, credit unions, or other lending institutions can respond more quickly with suitable loan offers and decisions. This allows them to attract profitable applicants and make instant decisions for their customers.

Compliance Risk

With the aid of loan decisioning software, lending companies can establish a risk management business strategy that allows them to offer the right options to the right consumers. This is essential for mitigating compliance risk.

Additionally, reduced human interaction reduces the likelihood of noncompliance and preferential treatment of applicants from specific groups. Courts take discriminatory lending practices seriously, and human lenders sometimes base their decisions on emotions rather than facts. Automated loan decisioning software can decrease the risk of discrimination and keep you on the right side of the law in your lending business. The need to assess risk accurately does not always emanate from the borrower but rather from within the organization.

Operational Risk

Automated loan decisioning software helps to ensure that nothing is overlooked during the implementation of scoring models. Auto-decisioning reduces human intervention and enables businesses to measure and monitor the accuracy of implemented models and scores. Additionally, reduced human interaction reduces application fees for each loan.

What’s Best for Your Lending Business

Each lending institution has its operational requirements, so there is no universally applicable tool.

If you are enthusiastic about the possibility of automated loan decisions, consider how to implement fair guidelines. Also, ensure that you monitor, evaluate, and optimize your strategy to adapt it to changing trends, qualifying metrics, and business needs.

Evaluate your organization’s needs and determine if automated loan decisioning will help you achieve them; if so, the next step is to find decision-making software that fits your business model.

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