How to Build a Loan Management System

While there is a shift to digital recording of loans, there is still a long way to go. To bridge this gap, the most important development is the construction of digital lending platforms. Bringing the loan provider and digitalization together and building interactive, robust, and easy-to-use loan management software and systems is crucial.

In this blog, we will discuss the details of what a loan management system is, what its features are, and how one such platform can be built.

What is an online loan management system?

A loan management system is a software application or platform designed to streamline and automate various processes involved in managing loans throughout their lifecycle. This is a digital platform that helps the lender handle and automate the loan processes, right from the application for a loan.

This platform helps banks, money lending institutions, and other financial institutions by: 

• gathering and verifying the applicants, 
• offering loan products, 
• interest rates
• Different types of loans
• measure the capabilities of the applicant’s return capacities. 

Thus, a digital place to collect and specify all the information related to the loans and policies is what this system consists of. 

Features of loan lending platforms

For the effective handling of loan origination, servicing, and collections, the features that are integrated into the loan management system are given below.

1. Loan orientation: The loan application process is facilitated by the system. This includes capturing information on the applicant, and their loan worthiness, performing the risk assessment and finally making the loan agreement.

2. Documentation and collateral management: loan-related documentation, such as ID proofs, loan agreements, and collaterals, is managed and stored in the system and can be retrieved easily as per the requirement. 

3. Loan servicing: The system also manages the repayments, interests, disbursements, and payment schedule. It automatically calculates and sends out reminders, notices, and statements for repayment. 

4. Credit decision: The system also helps the lenders in the assessment of the applicants by analyzing their financial scores, their banking history, and their collaterals so that the risk factor can be minimized. 

5. Collection and delinquency management: It also helps in collecting payments. The tools used by the system help monitor and manage loan collections, including tracking overdue payments, generating collection notices, managing payment arrangements, and handling delinquent accounts.

6. Reporting and analytics: The lenders can identify trends and make informed decisions with the reports and analysis done by the system. These assessments are in the form of loan portfolios, delinquencies, payment histories, profitability, and other performance metrics. 

7. Compliance and regulatory support: The system also aligns with regulatory requirements and compliance rules like AML and KYC. 

8. Integration and automation: The loan management system also integrates with the external systems of credit bureaus, payment gateways, etc. to streamline the exchange of data and automate processes. 

How do I build a loan management system?

For the construction of a loan management system, the following key pointers are a must:

1. Requirement gathering: understand the specifications of the loan management system as per the requirements, like key features, functionalities, and goals of the system. This should be done after considering loan origination, compliance, servicing, and collections. 

2. System design: the design and construction of the system should be aligned with the identified requirements of the system. This design includes the UID, database designs, workflow diagrams, and integration points with external systems.

3. Technology selection: this step involves the correct technology selection depending on the factors of security, identified requirements, performance, and compatibility with the existing infrastructure. These technologies will include programming languages, databases, and web frameworks. 

4. Development: This step involved the implementation of the loan management system based on the system design. This means that coding the application, creating the user interface, and creating database schemes are the phases of development.

5. Testing: the testing of the loan management system is what comes next; here, thorough testing of the system is done. Unit testing, integration testing, and system testing to identify and fix any bugs, errors, or inconsistencies are all part of this step. 

6. Security and compliance: incorporating security features to protect exclusive data and adhering to compliance rules are mandatory. Implementation of encryption, authorization, and authentication are the key features. 

7. Deployment and maintenance: Deploy the loan management system to the appropriate environment, whether it’s on-premises or in the cloud. Monitor system performance, gather user feedback, and address any post-deployment issues.

8. Training and support: training the employees engaged in the usage of the system as well as the customers using the system is important for extracting benefits. This is done to ensure that they understand the workings and processing of the developed loan management system. 

Automation technologies for workflow

Three approaches might be used for a streamlined and automated loan processing system that reduces mundane tasks. These can be incorporated into the loan management system to enhance efficiency and the user experience. 

• RPA (robotic process automation): This automates the repetitive process. These can be tasks like data entry, repetitive payments, and reporting. It can also help in chatbot communication by instantly replying to customer queries. Technologies like these help in automating time-consuming tasks and repetitive work and ensure faster delivery of the tasks. 

• AI/ML decision-making: Artificial intelligence and machine learning technologies help with the automation of repetitive work while reducing the chances of errors. These might include tools that evaluate credit scores and make decisions for loan approval instantly. This approach thus not only speeds up the process but also makes for accurate decision-making in the loan management system. 

• BPM-based (business process management): This approach, also known as business process management automation, helps by streamlining loan processes. These processes include data entry, the onboarding process, and many more that further the interactivity between the customer and business in a friendly way. 

Conclusion

With this, a conclusion on how one can build a loan management system online can be drawn. From the key features that must be a part of this system to how to stepwise go about the structure of this system, we have understood the necessary aspects. Also, we discussed some of the automation technologies that can come in handy while building a digital lending system. 

Building a loan management system requires a comprehensive approach involving analysis, design, development, testing, and deployment, which we covered. For all these things, a team of developers and experts is required.

One place for all the lending-related services provided by financial institutions is Trustt, formerly known as Novopay. Their digital lending platform aims at providing banks with an end-to-end lending stack, including a loan management system, a loan origination system, a credit underwriting engine, and collections. Their loan origination platform is integrated to provide rapid configuration using the business rules engine to provide new loan products quickly.