If you ask any financial institution that’s recently enjoyed success with its indirect lending program, chances are that success will in some way be attributed to the relationships built within that institution’s dealer network. Those relationships involve several key factors – far beyond showing up once a month with donuts and slightly lower rates.
While the human element of these relationships should never be understated, having the right loan origination system implemented on the back-end is very important to delivering the speed, consistency and decisions necessary to win a dealer’s business.
Earlier this spring, we presented three fundamental best practices that all successful indirect lending programs must have in their technology. To further this discussion, here are three more:
- Dealer reserve and origination fee management: Dealerships send financial institutions business because there is a financial reward for them to do so. Whether a dealer reserve or an origination fee (or both), your loan origination system must be able to accommodate different methods of calculating what should be paid to the dealer. The system should also be able to calculate a dealer portion that allows for retention or participation by your institution. Finally, the system should have an option to combine proceeds and fees or pay them separately.
- Dealer payment methods: As it likely is with your institution, dealerships prefer loans to be processed as quickly as possible. To them, a sale is fully realized when the loan proceeds and dealer reserve/origination fee are received. You should make sure that your loan software can create ACH files for this purpose. ACH payment is the fastest method of disbursing loans. For special scenarios or relationships, ensure other funding methods are available such as check disbursements or disbursing directly to a dealership-held account at your institution.
- Dealer contract alignment with policy guidelines: Since the consumer signs loan documents at the dealership, you are not modifying the loan terms once the funding package has been received. You must audit the loan to ensure the contract is both regulatory compliant and also meets your own internal policy guidelines. Your system should be able to check the terms automatically to increase funding speeds. This includes items like ensuring the Fed Box and Itemization of Financed sections balance, the stated APR is within 0.125 percent deviation of federal policy or the warranty amount is not more than a configured threshold. If exceptions occur, you should be able to quickly notify the dealer so corrections can be made.
Competition in the indirect lending market is getting tougher by the day, so that’s why it’s important that your loan origination system adheres to these and other best practices.
Our partners at Coastal Credit Union understood this when they chose MeridianLink’s LoansPQ platform for greater indirect lending success. By implementing LoansPQ, Coastal Credit Union increased consumer loan volume by 78 percent, improved pre-approval functionality, and achieved seamless integration of loan origination and account opening by also implementing MeridianLink’s XpressAccounts solution, which runs on the same platform as LoansPQ to deliver even greater efficiencies.
“The admin set-up was also a lot more robust than what we had before,” said Crystal Robinson, Service and Delivery Manager for Consumer Lending at Coastal Credit Union. “There are a lot of criteria such as price adjustments and custom lists in LoansPQ, which were missing in our old system, that allow us to better drive the applications to our customized queues.”
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ATTENTION: Upcoming MeridianLink Demo Days
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Scheduled for June 5-6, 2019, this inaugural interactive and FREE digital event allows attendees to see actual demonstrations of all key MeridianLink technology and services. The following solutions are featured:
- Application Portal (digital origination)
- XpressAccounts (deposit account origination)
- LoansPQ (loan origination)
- MLX Insight (business intelligence reporting)
- XpressCollect (collections)
- LendingQB (mortgage origination)
- MLX Consulting (business & analytics consulting)
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