Online lenders disrupt the industry by offering fast service, responsive customer communications, and convenience – but they must continuously improve their services to maintain their competitive edge.
Loan servicers must track and measure their performance regularly to ensure they are on the right track. Key Performance Indicators (KPIs) help lenders to measure critical parameters such as product costs, risks, customer service, and profitability. This enables lenders to make quick and informed decisions for more comprehensive loan servicing.
KPIs for loans are measurements or metrics lenders use to track the performance of various lending activities and processes. Stiff competition and increasing customer demands for personalized services put pressure on lenders. It is now more important than ever for digital lenders to evaluate their performance and establish how they stack up against the competition. Use KPIs to identify areas you can tweak to cut operational costs and improve performance.
Loan KPIs offer lenders insight into crucial loan data analytics to optimize decision-making and streamline operations. Data analysis is essential for the success of lending programs. For example, with data on debtor demographics, account activity, and risk ratings, lenders can perform customer segmentation to base loan issuance decisions.
Loan KPIs give insight into various lending elements, including how long it takes to issue loans, how much it costs to issue loans, and how efficient you are at processing loans or identifying risky loans. For example, if you discover the cost of issuing a loan is high, you can examine your loan processing activities for redundancies. You can cut operating costs by eliminating duplicate tasks and automating repetitive ones.
Tracking key performance indicators around online lending pinpoint areas that need improvement to achieve better ROI and profitability.
The most common KPI areas in the loan servicing industry include:
Examples of the common KPIs lenders need to track and measure include:
The pull-through or application conversion rate is a measure of funded loan against all loan applications in a fixed period. This KPI measures workflow efficiency, quality of applications, interest rate competitiveness, and the quality of customer service. It helps to identify any problematic inefficiencies and gauge whether your system can take more loan applications.
Average Cycle Time
Average cycle time is the average time it takes to go from loan application to funding. It is an essential KPI to track when you want to improve loan processing efficiency. Poor cycle time negatively impacts the pull-through rate as many applicants abandon their loans.
Average Loan Value
The average loan value is a primary KPI for profitability. Loan processing processes do not differ much for different loan amounts. But, revenue generation varies between loan amounts. This KPI keeps your average loan volume closer to the conforming limit.
Cost Per Unit Originated
This KPI measures operational efficiency relative to factors like capital expenses, staffing, cycle times, and pull-through rate.
Here are a few best practices to keep your team on track to ensure that your KPIs benefit your bottom line.
A highly competitive lending environment has made it imperative for digital lenders to streamline operations. KPIs measure how lenders stack up against the competition and pinpoint areas of improvement to cut costs and improve profitability.
Are you interested in learning how to set and achieve KPIs customized to your business in order to increase your loan portfolio profitability?