Financial institutions have started implementing various web technologies in the previous decade. This has resulted in the financial sector becoming more swift, efficient, and inclusive. From the loan application, loan underwriting, and even the loan approval process, each step has become advanced with the help of various innovative solutions. Here are some processes that have made a major positive impact on the lending market.
Inclusion of digital documents and alternative data in the loan underwriting
In the past, a loan applicant needed to carry a lot of paper documents for identity verification and the underwriting process. If the applicant failed to produce any of the necessary documents, they were not considered for the loan approval. Even if they submitted all the paper documents, the loan underwriting process used to take a lot of time. This was a disadvantage for any borrower who needed the loan amount urgently for an emergency. The loan application also weighed a lot on the credit score of the individual. This made it harder for new credit users to get a loan because they lacked a solid credit history.
However, the scenario has changed a lot. Applicants can now provide digital documents while applying online for the loan. This makes it convenient for many people living in remote areas in the country as they do not need to travel with their original paper documents. Apart from the inclusion of digital documents, alternative data is another innovative solution introduced in the lending market. If any loan applicant lacks a high credit score, the lending institution can use alternative data instead for the loan underwriting process. This helps many people to get loans easily at more suitable terms and interest rates.
Introduction automation and data analysis in the loan underwriting
Previously, all the steps of the loan application and underwriting process were done manually by employees of the bank or the lending firm. This is why the credit risk assessment of the loan applicant took a long time. Nowadays, most lending institutions have started using online services and solutions to make these processes faster. Many algorithms and machine learning models have come up that can analyze the loan applicant’s data credentials and check their creditworthiness. The introduction of such automation and data analysis in the loan underwriting process has made it swifter, inclusive, and transparent. These solutions allow credit risk assessment of the applicant to consider more factors apart from their credit score like the alternative data.
The lending institutions also use data analysis for more than just the credit risk assessment process. They can use it to map out the factors that can help more people from remote areas to access loan services. It can also detect the parts where automation can replace the manual processes to make the loan underwriting and approval process more effective.
We can see that these two innovative solutions have made the lending market more accessible to people, especially from remote and rural areas. This is why most banking and lending institutions have started implementing them in some ways in their credit underwriting processes.
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