Credit underwriting and assessment are crucial steps in the loan approval process, where lenders evaluate a borrower’s capacity to repay. Traditionally, the process involved manually analyzing the personal, professional, and financial information of the applicant. However, with the rise of digitization, technology has become indispensable in the credit underwriting system.
In this article, let’s explore the evolving role of technology in streamlining and enhancing credit underwriting and assessment, which empowers lenders to make informed decisions and minimize risk.
Why Are Credit Assessment And Underwriting Important?
Underwriting and credit assessment are crucial steps in the loan approval process, with which lenders assess your creditworthiness. They examine your income, debt, assets, and more to determine if you meet their eligibility criteria. The goal of underwriting and credit assessment is to minimize the lender’s risk by approving loans for individuals or businesses with a high likelihood of repayment. To put it shortly, these processes help lenders evaluate the level of risk they should assume in exchange for an interest rate.
How does technology help in credit assessment and underwriting?
Abhay Bhutada, Poonawalla Fincorp’s MD, stresses the importance of implementing the latest technology in the lending business. Bhutada says that using Artificial Intelligence and Machine Learning can optimize credit underwriting, assessment, debt recovery, compliance, and a lot more at a lower cost.
Increased Speed and Efficiency
This must have been an obvious point. Technology like robotic process automation can help automate manual tasks and speed up the underwriting and credit assessment processes. By using advanced algorithms and data analytics, technology enables faster data processing, reducing the time required for loan approval or rejection.
Technology-driven underwriting and credit assessment systems utilize sophisticated algorithms to assess loan applications. They consider multiple factors such as credit history, income verification, and asset valuations, that too while eliminating human error. As a result, lenders can assess risk more accurately and ensure that loans are granted to individuals or businesses with a higher likelihood of repayment.
Rajat Deshpande, the CEO and co-founder of FinBox, states that the high number of bad loans in the country can be attributed to imperfect, manual underwriting processes. A way to tackle this is by using AI, which can predict the possibility of someone defaulting.
Improved Risk Management
Every loan offered by a lender entails a certain amount of risk. So lenders do a thorough background check of their applicants. By leveraging technology, lenders can analyze their borrower’s credit history and other relevant information to gauge the risk involved in lending to them. This enables financial institutions to make informed decisions on loan approvals, set appropriate interest rates, and manage their loan portfolios more efficiently.
One major advantage technology offers banks and NBFCs is the lower operational cost. Automation of manual tasks, elimination of paperwork, and digitization of documentation result in lower administrative expenses. As the resources for manual tasks are freed up, lending institutions can optimize their resources, thus saving costs in the long run.
Improved Customer Experience
Technology enhances the customer experience throughout the underwriting and credit assessment journey. Digital platforms and online applications provide borrowers with convenient access to loan information and the ability to submit required documents remotely. Real-time updates and automated notifications keep borrowers informed about the progress of their applications. By leveraging technology, lenders can offer a more seamless, and customer-centric experience, ultimately increasing customer satisfaction and loyalty.
By embracing technology in underwriting and credit assessment, financial institutions can benefit from increased speed and efficiency, lower costs, and an enhanced customer experience. Along with all of these, technology can make credit accessible to the underserved population and reduce risk for lenders. As technology continues to evolve, it may become even more reliable in the future.