The Lending Journey: From Application to Payments
In today’s dynamic financial landscape, the lending journey is evolving into a more tech-driven process. From the initial loan application to repayment, the process is witnessing a remarkable shift towards efficiency through digitization. This post will take you through each step of this journey, highlighting the traditional practices while shedding light on innovative solutions like Installmt that are reshaping the future of loan payments with the borrower’s experience in mind.
An important clarification: this post follows a borrower’s journey with traditional installment lenders. These lenders are often confused with payday lenders, but they couldn’t be more different. For an explanation of their differences, see this great resource from the National Installment Lenders Association.
Applications are where it all starts. Lenders collect necessary borrower information like their name & address, employment & income information, Social Security number, and other financial obligations like mortgages, car payments, or other loans. Applications have historically been done in person or over the phone. However, lenders have recently begun to offer online applications for borrowers who prefer to complete this information at their own pace.
Upon submission of the application, the information is sent to the underwriting team. From the applicant’s perspective, this looks like a waiting period of 1-3 business days while the business makes its decision.
Underwriting is the process where lenders evaluate whether or not they should offer a loan to the applicant. Larger lenders can have central teams that handle all underwriting, but underwriting is more commonly done by the staff in the same office that took the application. Here, lenders scrutinize details to determine a borrower’s credit risk. But what exactly are they looking for?
First, the underwriter pulls a credit report for the applicant. This report shows the applicant’s credit score, performance on past loans, and any current debt. The credit report also allows the underwriter to verify the applicant’s address and other personal information. The underwriter also assesses other metrics, such as debt-to-income ratio and how long the applicant has been employed.
One important note: institutions like payday lenders and title lenders do not check credit reports when underwriting their borrowers. In fact, the underwriting process is very limited for such lenders when compared to traditional installment lenders.
After the underwriter’s formal evaluation, we reach the crux of the journey: approval or rejection. Lenders typically communicate their decision through formal letters or digital notifications. Applicants who are approved come into the loan office to sign the contract, which also outlines the terms of the loan: the interest rate, term, payment amount, and other critical details.
Approved loans now need to be funded, meaning the borrower needs to get the money. Funding typically happens either by check or a bank transfer. While digital bank transfers, especially instant virtual transfers, come with a small fee to the lender, more and more businesses are opting for digital transfers because of their convenience for the borrower.
Upon receiving their funds, borrowers begin the repayment process. For traditional installment lenders, payments are due on a monthly basis on the same day of the month that the loan contract was signed until the term is complete. As the borrower pays down the loan, the lender reports on-time or late payments to credit bureaus to add to the borrower’s credit report.
Loans can be paid in a variety of methods, such as cash, check, or debit card. Importantly, traditional installment lenders are not allowed to accept credit cards as a form of payment.
There are two key elements of repayment that differentiate traditional installment lenders and payday lenders:
- Traditional installment lenders report payment performance to credit bureaus, while payday lenders do not.
- While traditional installment lenders follow a regular monthly schedule of same-sized payments, payday lenders require borrowers to pay back the loan in one balloon payment within 30 days, or else borrowers will be charged a large late fee and forced to refinance the advance.
The Future of Lending: Installmt
In the evolving landscape of the financial sector, innovation is key. As we’ve explored the traditional journey of loan applications, it’s evident that while the system has worked, there’s ample room for improvement. There are countless tech-oriented solutions to improve the process of applications, underwriting, and approvals, but the innovation in payments is remarkably limited. This is where Installmt steps in, ushering in a new era for loan payment processing.
Installmt is built on cutting-edge technology to perfect each borrower’s repayment experience. By embracing advanced scheduling algorithms and automated payment processing, Installmt efficiently maps out payment schedules, taking into account borrower income and recurring expenses, and works for the borrower to make paying off each loan easier.
Enhancing the Borrower Experience
At Installmt, we prioritize the borrower above everything else. We want to deliver the most seamless, streamlined process possible to help borrowers stay financially fit. By automatically drafting payments when borrowers can best-afford them, borrowers are confident their obligations are being paid on time. As a result, we’ve helped borrowers improve their credit scores, and overdraft & late fees are now a thing of the past.
Benefits to Lenders
Lenders, especially in today’s fast-paced environment, seek efficiency. With Installmt, they find a partner that understands this need. Installmt’s automation doesn’t just save time – it also translates to financial benefits. Installmt partner Mike Dixon says it best:
Installmt has been a game changer! It has created a reduction in collection time and cost resulting in a quicker, more efficient cash flow.
Employees love Installmt, too. Over 50% of Installmt’s payment approvals are from “no-touch” overnight payments, meaning so much of employee hassle around collecting payments is automated away. Installmt even makes follow-ups easier with an easy-to-read morning report outlining which borrowers were approved and which borrowers need attention from staff.
Interested in Installmt?
We would love to demonstrate how we can improve your business. Schedule a demo to see how Installmt can help.