What is Loan Management?

Loan management software (LMS) is all about keeping things running smoothly after the loan agreement has been made with the private lender, bank, or credit union. Understanding what loan management is and the key factors is essential to keeping any lending business operating effectively while maintaining a good relationship with clients. We’ll walk you through what is expected at this stage of the loan lifecycle and how to manage key issues you might run into.

What is loan management?

Once your customers have received their funds, it’s on to the next phase of the loan lifecycle. To effectively manage your loan book, you need to be able to effectively keep track of payments, communicate with your customers, and address any changing circumstances as they arise.

Loan management vs origination

Loan origination generally refers to all the actions taken to get a client onboarded and set up with their loan. This broadly includes application submission, application review, credit checks, application outcomes, and disbursement of funds.

Loan management is what comes next. You maintain communication and support for customers. A loan management system will also allow you to monitor and process repayments for the duration of the loan. Keeping up to date with any missed payments or defaults so you can action them further.

Key functions of a digital LMS

Effective loan management requires having the right tools at your disposal. That’s why when you’re looking for a loan management system, keep in mind the key functions you need to serve.

Common features of a LMS include:

• Payment processing and tracking
• Interest rate calculation (fixed rate and variable)
• Automated payment reminders and invoicing
• Simple customer support and communication channels
• Up-to-date, easy-to-access loan information
• Real-time reports
• Ability to make changes to payments, schedules, or costs

Common problems in the loan management process

Loan management will typically be the longest phase in the loan lifecycle. That’s why it’s essential to understand common pain points for both you and your customers and how to solve them.

Client communication

Once your client has their loan, the communication is only just beginning. These days people like to stay informed about their loan situations and expect regular updates and multiple communication pathways. If you fail to meet these expectations, not only will customers be unhappy and seek finance elsewhere in the future, but you may also have to deal with complaints made to the Australian Financial Complaints Authority (AFCA).

Some common communications during the loan management stage include:

• Upcoming payment notifications
• Invoices
• Missed payment notifications
• Loan default notices
• Loan status requests
• Hardship requests
• Changes to payments
• Conflict resolution
• Offers to refinance
• Marketing communications

In order to provide ongoing timely and accurate service, you need the right software in place to meet your loan communication needs.

Payment tracking & cash flow

Traditional paper-based loan books make it hard to keep up to date with payment status. From manually checking payments have been made, to manually updating your loan book, it’s difficult to keep information current and your customers informed along the way.
An online loan management system should be able to provide you with real-time payment information – without having to manually input the information yourself. That way you can effortlessly keep track of your cash flow, adapt to changing situations, and ensure payments continue to come in on time.

Missed payments

Typically lenders will issue a fee for missed or late payments. If your loan management system lacks automation, this can be a very tedious part of the loan management process. Not only will you need to manually check for any missed payments, but invoicing the late payment and chasing up with the client all add more time and stress to the process.

Defaults on loans

If a customer defaults on their loan, you will want to have all of those overdue payment notices and any conversations had in a single, easy-to-access location. This can be tricky to keep track of as your loan portfolio grows, particularly if you service high-risk borrowers. But it is essential for both auditing and legal proceedings. Nobody wants to be searching through paper copies, excel spreadsheets, or computer folders when they need access to important information quickly.

Best loan management software

When you are looking for the perfect loan management software for your lending business, Biz Core is here to help. From loan origination to loan servicing, we can help you across every stage of the loan lifecycle.

Contact us today to book a demo with one of our friendly developers!