The world of lending has already come a long way from the days when you could simply walk into a bank and get a decision from the manager. In those days, it was often easier to get a loan, especially if you were on good terms with the person who was approving it.
Over the years technology has been used to improve application processes and reduce the risk of fraud and non-payment. This is good news for lenders when you consider that the average American has around $38,000 worth of personal debt excluding home loans. They obviously do not want borrowers to renege on paying this debt. Although technology helps to guard against this happening, there is still a huge amount of unpaid debt. However, it seems as though the application of artificial intelligence (AI) may help to further reduce the risk of non-payment and fraud.
Using AI in the loan application process
Technology is already at the forefront of many loan applications. For instance, an application for a small loan can be made in minutes online. However, AI is now revolutionizing the way that technology can assist the loan-application process.
For instance, AI can be used to enable machine learning in the finance industry. This means that computers can learn the forms that need to be completed when a loan is applied for. This means that they can determine whether a form has been fully completed or not.
This removes one onerous job that is normally completed by loan underwriters. Removing this type of simple task from the role of an underwriter enables them to concentrate on other aspects of the role such as customer service and the thorough investigation of applications.
Not only does this make the process quicker, but it also helps to reduce the risk of the incorrect awarding of loans, as underwriters have more time to concentrate on this element of their work.
Other benefits of using AI during the loan process
Speeding up the process, and streamlining the role of an underwriter, are not the only benefits to be had from using AI for loan processing. AI can also be used to gather information from all the big data that is available, in order to ensure that the correct decision is made. This is a major boost for lenders who obviously want to reduce their exposure to risk as much as possible.
Using AI in the ways we have mentioned brings about several different benefits including:
- Reduction in the cost of servicing a loan.
- Reduction in the cost of carrying out due diligence.
- Improved risk management for lenders.
- Reduction of losses resulting from fraud.
This is all good news for lenders who want to ensure that their practices are as streamlined, efficient and risk-conscious as possible. This may mean that the application process becomes more stringent in certain circumstances. Of course, it also means that loans should be processed quicker which should result in people who are awarded a loan having more timely access to their funds.