Loan Origination

Difference Between a Loan Management System vs Loan Origination System

June 28, 2023
Difference Between a Loan Management System vs Loan Origination System

Most loan applicants expect a straightforward, convenient financing process right from the first form they fill out to the funds arriving in their account. To meet these expectations, banks,  credit unions, and other financial systems must have reliable systems to track each step of the process through origination and its payment lifecycle.

Herein lies the importance of employing loan management systems (LMS) and loan origination systems (LOS) to provide customers with a robust, modern borrowing experience.

So, why should lending institutions invest in these solutions?

Let’s compare a loan management system vs loan origination system and explore each system’s key features.

What is a Loan Origination System?

A loan origination system (LOS) helps financial institutions streamline the otherwise complex processes surrounding personal and business loans. Although these processes can vary from one loan to another, loan origination typically involves:

  • Customers applying for the loan to kickstart the origination process
  • A financial institution reviewing and approving a credit application to determine the appropriate pricing and funding for the loan
  • The financial institution disbursing the loan (if successful) or rejecting it if the application does not meet the expected requirements for disbursement

At each step of loan origination, financial organizations must also comply with regulatory standards and ensure sufficient documentation for due diligence purposes.

For instance, individuals applying for mortgages must submit documents such as pay stubs, tax returns, and bank statements, which the lending institution refers to when making decisions on the loan during the remainder of its origination. Using loan origination software for banks and credit unions, you can automate decision-making on loan applications, streamline communication between parties, and track the progress of the application.

What is a Loan Management System?

A loan management system (LMS) comes into play after disbursing a loan to customers. With a LMS, lending institutions can gain visibility into all aspects of the lending cycle after loan origination.

An LMS also enables lenders to track the status of a loan, gain data-based insights on customers’ needs, and provide borrowers with the support they need when making payments. By gaining visibility into the loan throughout its lifecycle, lenders can learn more about existing gaps in their loan servicing infrastructure.

Key Differences Between LOS vs LMS

To compare a loan management system vs a loan origination system, it helps to consider practical business use cases.

In general, a LOS solution enables lenders to swiftly provide customers with the financing they need for a loan. On the other hand, an LMS helps these lenders track customers’ payments on a disbursed loan over time and within its contractual terms.

Loan Origination System—Funding Customers’ Loans Faster

For businesses that provide auto loans, such as car dealerships, a LOS can simplify lending decision-making based on the data collected from loan applicants during loan origination.

With many applicants walking into a dealership and applying for an auto loan, the LOS minimizes bureautic delays and reduces the backlog from manually reviewing and approving loan applications. An LOS can also help the lending car dealership conduct due diligence and comply with regulatory standards more effectively, especially when collecting sensitive documents like drivers’ identification cards or financial statements.

Loan Management System—Servicing Customers’ Loans Efficiently

A LMS is a handy solution for companies that provide personal or business mortgages to their customers. Since mortgages are typically financed much longer than other personal or business loans (15–30 years), loan issuers must invest in loan management solutions catering to their customers’ needs.

A LMS meets these needs by providing customers with options like:

  • Customizable auto-pay reminders such that customers don’t miss payments
  • On-demand access to information about the mortgage
  • Customer support to follow up on loan servicing delays

For any lender, a LMS provides the much-needed visibility to understand the nuances of the lending cycle, including how they are integrated and existing gaps in loan management.

Why You Need a LOS to Make Informed Decisions

When receiving multiple loan applications daily, it can be challenging to keep track of the documentation you receive and determine which loan to fund, especially when using traditional tools and processes.

The lending data in today’s economic environment is much more complex than decades ago, meaning lenders require novel tools that provide robust insights into risk profiles and pricing models. For instance, the rules upon which traditional LOS solutions make lending decisions might not be as effective today, especially when originating any loan type.

Optimize your loan origination system workflow with Fuse. Your team can originate loans much faster to provide customers with the funding they need for their auto loans, mortgages, or any other type of personal or business loan. Our modernized LOS solution is designed to be flexible, secure, and scalable, meaning that any business—regardless of size—can optimize its loan origination process.

To learn more about how Fuse works, request a demo.


Bankrate. What is Mortgage Loan Origination?

Salesforce. All About Loan Management Software.

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