Loan Servicing Simplified - A Complete Guide

Loan management systems are changing how loans work through automation by introducing efficient processes for lenders and borrowers. While they reduce the time and resources spent on manual tasks for lenders, they result in faster loan approval and personalized service for borrowers. Loan servicing is a crucial part of loan management that bridges the gap between lenders and borrowers. Here is a complete guide to loan servicing and how it works.

How Was Loan Servicing Done Earlier?

Loan servicing was a manual and labor-intensive process that was often prone to errors. Loan documents were stored in physical files, and required manual retrieval and processing. Information about the loan, such as payment records and borrower details, was entered manually into spreadsheets or databases. This process involved limited accessibility and automation, resulting in inefficiencies. While traditional loan servicing has complex and fragmented systems, new-age financial institutions are overcoming these challenges by turning to Digital Lending Solutions.

What is a Business Rules Management System?

A Business Rules Management System refers to the process of defining, deploying, managing, and executing business rules within an organization. These rules include business policies, regulations, and decision-making logic, providing a structured framework for automating and enforcing business processes.

Components of a BRMS

A BRMS typically consists of three components:

Defining and Creating Business Rules

Business rules must be readable by automated applications and expressed in conditional programming languages. They can also be expressed as decision tables, which can help craft rules in which more than one condition influences the proper action. Some BRMSs can also simulate rules for team members to test and see how they might affect decision outcomes.

Repository to Store Rules

Once the rules are defined, they are added to the BRMS’s central repository. The rules can be reviewed, edited, shared across the organization, and accessed by different applications.

Business Rules Engine

A Business Rules Engine is a software that allows other applications across the ecosystem to access the rules repository and also execute the rules. The application sends a request with the relevant data to the BRMS that the rules engine requires for decision-making. After this, the rules engine checks the request against the rules and makes a decision.

How Loan Servicing Works?

Automated loan servicing involves using technology and software systems to streamline and manage various aspects of the loan lending process.

Loan Origination and Transitioning from Lender to Server

Once a loan is originated the lenders can choose to retain the servicing tights or transfer them to loan servicing providers. Those who service loans take over managing the borrower accounts, processing payments, handling escrow funds, and also providing customer support

Managing Borrower Accounts

Loan servicing involves processing borrower payments, allocating funds and interest, managing escrow accounts for taxes and insurance, and addressing inquiries for assistance

Compliance and Regulatory Requirements

During loan servicing, it is important to adhere to strict regulatory requirements and industry standards that govern loan servicing practices. It includes compliance with laws like the Consumer Credit Act and regulations set by regulatory bodies like the Financial Conduct Authority (FCA).

Loan servicing is a crucial part of the loan lifecycle, but it all begins with loan origination. For a deeper dive into this, check out our blog, 'Loan Origination Systems - A Complete Guide.'

Benefits of Using Loan Servicing Software

Streamline Operations

Human error is inevitable regardless of how qualified a team may be. One of the primary benefits of utilizing a loan servicing system is that it significantly reduces costly errors. An efficient loan servicing system can maximize automation to reduce the risk of errors.

Enhance Debt Collection

Many financial institutions worry about collecting dues. Loan servicing software can help identify critical situations and allow institutions to react quickly before delinquent accounts reach a point of no return or payments become impossible to collect.

Enhanced Customer Communication

Maintaining clear and effective communication is vital for maintaining strong customer relationships. A unified lending platform facilitates seamless communication between lending institutions and borrowers through various channels, including email. SMS and in-app notifications. Ensuring transparent and consistent communication helps loan officers enhance customer satisfaction and reduce the likelihood of misunderstandings.

Centralized Payment and Tracking

With a single platform, one can track at which stage of the loan the money is, set payment schedules, prevent payment delays by sending alerts through emails or text messages to borrowers, and ensure the application of automatic fees on late or missed payments.

Increase Productivity

Automating manual tasks can save considerable time for your financial institution. They simplify time-consuming tasks, allowing you to focus on higher-priority tasks.

Real-Time Reports

Generating reports and invoices for borrowers and investors is a crucial aspect of Loan Servicing. A quality loan servicing software can extract real-time reports for any required period.
Customizable dashboards and reports enable loan servicers to monitor key performance indicators, identify potential risks, and make data-driven decisions.

Boost Efficiency

If tracking outstanding loans, identifying risks, and managing unforeseen situations are all tackled easily, allowing your team to work efficiently, revenue will naturally increase. Due to the monitoring offered by loan servicing systems, receiving payments is simplified and faster, which in turn contributes to an increase in revenue.

Loan servicing systems can help save time and money, regulate cash flow, and reduce annual financial costs by reducing losses.

Introducing ZIVA

Novac’s ZIVA is lending management software with a comprehensive module suite designed to meet the requirements of lending businesses of all sizes and across various spectrums.

Key Features of ZIVA’s Loan Servicing Module

Application Processing

ZIVA’s loan servicing module facilitates the effortless creation and management of loan applications for financial institutions. It streamlines the process of collecting necessary documentation and verifying borrower information.

Payment Processing

ZIVA automates payment processing tasks, encompassing payment application, delinquency tracking, and late fee calculation. Thai automation ensures accurate and timely payment processing, minimizing errors and incidents of late fees.

Accounting

With robust accounting features, this module enables financial institutions to maintain precise records. This includes functionalities such as general ledger entries, loan-level accounting, and comprehensive audit trials, ensuring efficient management of loan portfolios and adherence to compliance standards.

Reporting

ZIVA’s loan servicing module offers a diverse array of reports, tailored for financial institutions. These reports empower users to monitor loan portfolios, track loan performance metrics, and derive valuable insights for informed decision-making.

Collections

This module equips financial institutions with effective collections management tools. This encompasses features like collections worklists, collections reporting, and collections forecasting, facilitating the proactive management of delinquent loans and improving recovery rates.

ZIVA Loan Servicing

Request for tenure/due date change
Part prepayment
Loan closure
Recovery management functionalities
Allows servicers to manage risk
Provide better customer service
Address default management challenges

Loan servicing is crucial in lending processes, providing borrowers with the right support and assistance throughout the repayment journey. For businesses looking to stay ahead of the competition, automation presents an opportunity to transform loan management systems. ZIVA®’s comprehensive loan management software eases your loan management process and elevates your digital lending business.

Get in touch with us and explore our digital lending solutions.

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