A common question we are often asked when lending institutions are looking for a new or better lending software is what type of loans we can originate and whether we service any type of loan. With API integration now part of almost any business, lending institutions may want to use different companies for origination than for servicing, or vice versa.
We offer both origination and servicing software, but we also offer hundreds of APIs to connect our data to any partner you are comfortable using, and for any loan type you can think of.
How can our company be so versatile? We’ve molded our system to adapt to any loan type. Some of our institutions offer more than 70 different types of loans, depending on where the loan is being originated. Local, state, and even federal regulations may stipulate different requirements from other states or localities.
The following are five key fields our system uses that allow the flexibility to cater to any loan type.
1. Loan Type
We can create thousands of different loan types. Loan types can be varied as the customers you serve. Imagine Forrest Gump’s friend Bubba speaking about all the different types of recipes involving shrimp when we say…
We can set up loan types with no interest for the first year; loan types for precomputed interest; loan types for daily interest accrual, but with varying interest rates; mortgage loans; revolving line-of-credit loans; line-of-credit loans with a purchasing card; auto loans from a dealer; direct auto loans; loans that don’t need to be paid back. (Gotcha—just seeing if you were still awake. That last one isn’t a loan type.)
The most loan types we’ve seen from one institution was 120 different loan types. And with each different loan type comes different origination and amortizing fees, different interest rates, different interest accrual methods, different late charge amounts, and different rules to govern the loan, such as when to stop late charges and whether to allow deferments.
If a loan were a triangle, the base of the loan would be the loan type.
2. Loan Classification
Classification generally is where the loan is originated. It can be determined by state, city, or even region. Because state and local laws may affect certain aspects of loans, the classification is needed to determine where the loan was opened, so those specific regulations can be followed. You may have a few standard loan types that can be applied to multiple regions or states, where other loan types are specific to certain states.
Loan classification and loan type work hand-in-hand. You can create different loan types, such as interest-bearing loans under 5,000, that work differently in Texas than the same loan type originated in Illinois.
3. Payment Method
Payment method determines how to calculate interest and what rules to follow in processing the loan account. Payment methods are not as diverse as loan type and classification, but they’re a key part to the loan. Some loans accrue interest monthly. Other loans have precomputed interest, where the interest that would have accrued over the life of the loan is applied up front when the loan is originated and basically becomes part of the loan. Adjustable rate mortgages are another payment method, as well as signature loans.
4. Late Code
You probably already know this, but states are very particular about what lending institutions are allowed to charge for borrowers making late payments. And regulations can be in flux, which means you need software that can accommodate those changes.
The easiest way to accommodate changes is to charge a flat fee that is below the state’s maximum amount you are allowed to charge. But loans are seldom that easy. Our software currently accommodates up to 32 different late charge codes. A few of the late charge calculations include:
- Percentage of Total Payment
- Percentage of Principal and Interest Payment
- Percentage of Principal Balance
- Percentage of the Unpaid Portion of the loan
- Percentage of the Original P/I
- Daily Portion of P/I
We can add more to this list, as well. Once the code is set on an account, the system takes care of the rest. Late charges are automatically applied as designated by the code and Grace Days. (I don’t need to tell you that Grace Days are the number of days after the Due Date a borrower has to make their loan payment without being charged a late fee. If they pay after the Due Date + Grace Days, that’s when the system applies the late charge. I know you knew that already, but I didn’t want to confuse you with Heyburn, Idaho’s annual event dubbed “Grace Days.”)
5. Amortizing Methods
If you’re still awake for this last bullet point, then you might be interested in financial lending. A brief history lesson: did you know the word “amortize” comes from the Middle English and Anglo-French word from Vulgar Latin “amortire,” which means “to kill”? Read all about it in the online Merriam-Webster dictionary. That’s right: amortization means to “kill the loan.” (Now who’s asleep?)
Rules governing amortization can also vary depending on local, state, and federal regulations, as well as loan type. The loan amortizes, but so can fees, precomputed interest, and insurance policies (if insurance was part of the loan).
Our system currently has 17 different methods of amortizing fees alone. See the In’s and Out’s of Amortization for a deeper dive on how our system amortizes different aspects of loans.