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ArticleLoan Origination System

10 Most Important Criteria for Choosing the Best Loan Origination System

Present-day lending businesses operate in complex environments. All their operations have to comply with changing industry policies, rigorous scoring methodologies, and regulatory requirements. 

In such conditions, survival without digital transformation is impossible, as a lending company’s staff usually drowns in tons of paperwork related to loan applications, approvals, and documents. 

By adopting an advanced, smart loan origination system (LOS), your business can move to the next level of loan portfolio cycle automation. Modern LOS gives you ultimate data control and allows resource use optimization across the entire audit trail. 

How to choose a loan origination system that will not break the bank and will meet all your business needs? Here is a complete overview of LOS systems and a breakdown of vital selection criteria.

What is a LOS?  

A LOS is a software product for the automation of lending processes and documentation management in lending firms. 

It should offer a centralized, automated tech solution built in line with all regulatory compliance standards to simplify and speed up the loan application, approval, and issuance procedures. 

Modern FinTech products for lending firms include handy features like omnichannel data management, real-time monitoring, underwriting and rating tools, credit analysis, and loan servicing to ensure better business performance with minimal compliance risks.

Other LOS features:

  • Process management;
  • Screen management;
  • Printout management;
  • Integration management;
  • User management;
  • Document repository;
  • Scoring engine;
  • Financial spreading;
  • Business configuration;
  • Covenant module;
  • Company relations module;
  • Collateral module.

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How to choose a Loan Origination System? 

Every business owner wants the best loan origination system, as it promises omnichannel automation, product unification within a single platform, and better loan portfolio cycle management. 

Yet, there are dozens of offers in the market, and picking the optimal product for your specific firm may be challenging. 

We recommend checking whether the loan origination system vendors offer the following: 

  • User-friendly data entry 
  • Easy underwriting 
  • Customizable decision-making 
  • Simple user verification

These are the fundamentals of choosing a LOS that will work for your benefit and simplify your loan management processes for clients and staff.

10 most important criteria for choosing a LOS 

When looking for fair lending software, you should pay close attention to these quality criteria. 

These 10 parameters of a LOS will determine the quality of your user experience and the tangible automation benefits you will reap from the LOS software integration.

1. Vendor’s domain experience

Many software vendors are working in the FinTech sphere, and each may be talented and skilled in various niches. You should find a company with an extensive track record specifically in the lending niche, as it possesses nuances and peculiarities not typical for other financial businesses. 

It’s vital to choose a vendor competent in the ins and outs of the lending business, the essence and steps of loan origination, and the technical nuances of loan automation.

Loan Origination Process

2. Easy to use

A purpose behind any automation effort is to reduce the time spent on system use and onboarding. A vital quality parameter of a LOS is the ease of its implementation and use in your company’s software infrastructure. 

Our tip: Choose a LOS that streamlines and speeds up the lending processes for all involved stakeholders and is pleasant to interact with due to a great UX/UI.

 3. Easy to learn

User onboarding is key when it comes to new technology integration. 

Your chosen LOS system should be simple and intuitive for both staff and clients, giving them a full overview of handy functions and real-time loan tracking tools. 

Your employees should be able to learn all software nuances and master its functionality to handle the entire loan process from start to finish without confusion or mistakes. 

Our tip: Investigate the vendor’s onboarding materials or on-site training options. 

4. Easy business logic customization

The best LOS systems are highly configurable. They should let you introduce changes and modifications in all settings and parameters to let the system serve your individual business needs. 

You won’t need extensive coding used in legacy systems for changes’ introduction; a modern LOS should be adjusted in a couple of clicks without coding experience. 

Fig. 3 shows what aspects of your LOS system should be customizable.

LOS system's configuration options

Our tip: Check if LOS software allows for the quick customization of scoring models, workflows, and queues.

5. Strict security controls

Privacy and security of user data are major bottlenecks to the digitalization of lending businesses. Regulators and clients alike are worried about the robustness of security measures that a lending business can guarantee to sensitive client data. 

Our tip: Analyze the vital security measures that your LOS system vendor has implemented in the software solution. Pay attention to security controls, as they determine who has access to user details and how the access rights are granted, managed, and revoked.

6. Robust workflow and integrations

Your LOS should allow quick, intuitive, and robust workflows across the loan origination and management cycle. 

Every authorized staff member of your company should be able to access documents, status updates, and process management tools on a single, intuitive platform. Besides, all application processing, underwriting, loan closing, and follow-up tools should be automated and convenient. 

Support of API integrations deserves a separate mention here. Modern businesses rarely function in isolation, as the digital world is becoming increasingly interconnected. 

Why build additional services from scratch and pay way more money if you can link your lending software to third-party services via APIs? 

Our tip: Adopt a strategic stance on the issue and choose loan origination software that supports a broad range of API integrations.

7. Future-proof technology

Present-day technology evolves fast today, so your digital transformation efforts may quickly become outdated. 

It’s strategically important to choose scalable and flexible choices in LOS software design, which is best achieved with the help of microservices architecture. It’s highly adaptable and can be tweaked in many ways without downtime or loan origination cycle disruptions.

Our tip: Check the architecture of the platform to see if it is a microservice one.

8. Cloud-based vs. on-premise

Migration of lending business operations to the cloud is a pressing necessity for many businesses. Cloud-based software enables much quicker operations due to the immense technical capacity of cloud providers and ensures global access to the lending platform from any device, location, or browser. 

Cloud solutions are easier to integrate and come at a lower cost than demanding and resource-intensive on-premise software. 

However, on-premise solutions are safer and more immune to data breaches. 

Our tip: Select an optimal alternative based on your business needs.

9. Omnichannel support and device-agnostic

The key task of any lending business is to make its services easily accessible to various populations. Along with moving fast-forward with digital transformation, you should leave other alternatives open for less digital-savvy clients. 

Your loan offerings should be available via online applications, local loan agents, and sales teams, as some clients may have limited access to technology. 

Our tip: Don’t stick to specific devices and operating systems when launching a loan origination system. Make it flexible enough to incorporate all populations you serve.

10. Efficient and friendly for employees and borrowers

Don’t forget that it’s your staff who will operate the advanced LOS you’re integrating. 

It’s vital to check that the system is intuitive overall, with all staff being able to complete the entire loan cycle without friction and errors.  

Our tip: Check whether the vendor provides staff training or comprehensive onboarding videos and tutorials.

Conclusion 

Lending software is getting more advanced today, with numerous consumer credit, car loan, and mortgage loan origination system vendors offering their lending software solutions to clients. 

Business owners are spoiled for choice, so picking the right variant is a matter of rigorous market research and feature evaluation. 

We’ve covered the key aspects of concern a lending business should have regarding LOS system implementation. Now it’s your turn to go through the available alternatives and choose the one complying with your budget, technical infrastructure needs, and functions.

FAQ

What are the criteria used in evaluating loans?

Traditionally, lending organizations focus on five key criteria when making credit decisions: the applicant’s credit score and history, minimum income, debt-to-income ratio, origination fees, and collateral they can provide to back the credit.

What is the most essential part of loan management?

An essential part of your LOS is its flexible configuration. This feature allows quick changes in settings that make the processes efficient and custom-tailored to your everyday operational routines. The more customized the system is, the more freedom you will enjoy using it.

What are the 5 key credit criteria?

There’s a 5 Cs formula for credit application evaluation: capacity, capital, collateral, conditions, and character. The most important criterion is Capacity, which is the applicant’s financial ability to repay the loan in line with the negotiated terms.

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