Since the decade or so, the auto industry has experienced unprecedented technological advancements. Car ownership has been redefined by advances in design, prototyping, and manufacturing techniques, as well as innovations such as voice recognition, built-in GPS, adaptive cruise control, and advanced diagnostics. In the same vein, modern technology is now focused on auto lending and loan origination software.
There is a lack of functionality in auto loan origination systems (LOS) developed and deployed a decade or more ago. They cannot effectively address the current needs of either lenders or borrowers. Using cloud-based services, lenders have access to increasingly flexible loan origination software that optimize efficiency. Here are a few of their key features and the enormous benefits they offer.
A high-performing loan origination platform should have the following features
It is a major undertaking for any lender to replace an outdated loan origination system with a more modern one. In spite of this, a LOS that streamlines processes, meets regulatory compliance, and is easily configurable is now available. If lenders are dissatisfied with their current LOS or are concerned with high operational and support expenses, it’s probably time to upgrade.
Technology advancements have enabled lenders to improve performance while reducing operational costs. Rapid implementation of a loan origination platform also allows lenders to realize a faster time-to-value. By making configuration easy, lenders can easily modify the system to align with their unique business practices. Accessing data sources and services also allows lenders to make better decisions faster.
Before selecting a new loan origination platform, lenders should consider the following:
- The company that offers its own version of a LOS should have a strong heritage, sufficient expertise, knowledge of the industry, and be in a position to prove its success.
- In order to ensure system functionality well into the future, the vendor should be able to adequately explain how it evaluates and incorporates new technology. To reduce operational expenses and improve process efficiencies, it is essential to implement current technologies as they become available.
- To meet lender requirements, a new LOS should have simple configuration options.
- Data integration: A vendor whose system integrates easily with all consumer and other financial data sources will help lenders make better decisions.
- The implementation of a new loan origination platform shouldn’t take months or cost a fortune. A LOS should allow lenders to realize the benefits of a new system as soon as possible.
With a long history of loan origination
A lender should consider a vendor’s heritage before evaluating the technical capabilities of a new loan origination platform. What are the number of employees with on-the-job lending experience? Has the vendor’s software been used in a business setting by these employees? Does the company offer only lending solutions, or does it offer a wide variety of business products for a wide range of industries?
Lenders should note whether or not the vendor’s account representative is:
- Knows the business of a lender intimately
- Communicates in the lending industry’s language
- Knows the nuances of loan origination
In a company that has a singular focus, everyone works together to achieve the lender’s goals. A third-party vendor should have a team of highly-qualified employees with a background in lending, as well as hands-on experience using the LOS being promoted. When a vendor has all of this, it can significantly improve how a lending system is supported, along with its design and development.
When a vendor readily grasps a lender’s needs, has a common vocabulary, and takes a consultative approach to discussing requirements, a lender should carefully consider the vendor and its products.
Choosing a vendor is also influenced by the vendor’s eagerness to win your business. It is more reassuring to deal with a vendor’s CEO who welcomes a customer’s phone call rather than dealing with a personal assistant who requires several weeks’ notice to schedule an appointment with the vendor’s CEO.
Technology Trends in Origination Systems
In addition to delivering efficiency and configurability solutions that solve immediate issues, a lender should invest in a new LOS that can integrate new and emerging technologies as soon as they become available. Among the three technologies that could significantly improve efficiency and profitability immediately while paving the way for future innovations, these are:
- Thousands of businesses are migrating to cloud computing. This software-as-a-service approach has proven more beneficial economically and operationally for lenders than on-premise IT infrastructure and the legacy software of outdated loan origination solutions.
- With more business conducted online than ever before, a LOS that provides lenders real-time access to loan approval status will make all phases of the loan process more efficient. For auto sales, this includes crucial details like a vehicle’s sale price, interest rate, terms, loan-to-value (LTV), and probability of closing on the loan. All parties who need to know the status of a loan will be updated with this innovation.
- An increased understanding of a lender’s operations is provided by analytics. With preloaded reports and configurable dashboards, lenders can continually optimize all phases of the loan origination process by tracking current application performance, deal quality, competitive losses, and many other factors.
Processes for simplifying system configuration
In addition to past success, portfolio performance, market dynamics, and compliance with evolving regulations, every lender has its own processes. Even minor modifications to outdated lending systems require programming expertise and months, if not years.
Key questions to ask a SaaS vendor’s account representative include:
- Does a business user need technical expertise to make configuration changes?
- What is the process for creating and modifying decision rules?
- Can you configure it for each individual user’s needs?
Users should be able to easily configure LOSs, with dashboards, drop-down menus, display fields, and access permissions that meet lenders’ ever-changing operational requirements.
Integration with key data providers
In addition to Digital Matrix Systems, LexisNexis Risk Solutions, Equifax, Point Predictive, and TruDecision, cloud computing offers lenders access to a growing list of consumer and financial data providers. By reducing risk and improving loan performance, these sources help lenders make better decisions.
The data sources lenders rely on now and in the future should be carefully considered before selecting a new LOS. When a lender intends to use data sources in the future, it’s important to ask the vendor’s account representative about the extent (or limitations) of these relationships.
Lenders should be able to use leading information providers immediately with a LOS that integrates seamlessly with leading information providers. Lenders should identify key data sources and inquire whether the vendor integrates with them natively. It may take considerable time, with significant additional costs, to link them to the new LOS through a major or custom integration.
Implementation of the loan origination system in a timely manner
According to Jeremiah Erasga of Ship Tracking, all of the aforementioned features will have limited or delayed value if a lender’s team has to wait a long time to deploy a new system. In the past, it was often time-consuming, frustrating, and expensive to implement a new LOS. Nowadays, the time needed to implement a modern LOS has been significantly reduced.
If it will take several months, or even years to implement the LOS, that’s too long. The lender needs to ask the right questions, including:
- Is there a single point of contact or a small team?
- Are they readily available to answer questions?
- What is the level of risk associated with the implementation process due to the size and bureaucracy of the company, the range of products, and the possibility of unexpected personnel changes?
A single point of contact backed by an experienced team is what’s needed to quickly implement a new software platform so lenders can improve their business. This isn’t just critical to a smooth implementation of a software platform, but also helps ensure a positive and profitable relationship emerges between lender and SaaS vendor.
