Determining the best loan configuration for a general lending business will depend on several factors, such as the type of loans being offered, the target market, and the financial goals of the lending business. However, here are some general tips that can help in creating an effective loan configuration:
You may want to consider the loan business financial forecasting model as well.
- Offer a variety of loan products: Offering a range of loan products such as personal loans, business loans, mortgages, and auto loans, can help attract a broader customer base and meet the different financial needs of customers. This means your risk is not concentrated in any single sector and will be more resilient to large economic changes.
- Set competitive interest rates: Offering competitive interest rates can help attract more customers and make the loan products more appealing. However, it's important to balance profitability with competitive pricing. Generally, there will be some sort of risk model that you feed data into and it spits some range of interest rates out. The lower the risk, the lower the rate, the higher the risk, the higher the rate.
- Set appropriate loan terms: Loan terms such as repayment period and interest rates should be appropriate for the type of loan being offered and the borrower's creditworthiness. Make sure you are following generally accepted repayment terms / amortization schedules. It should be easily explainable and duplicable, no matter if it is a flat fee, standard principal and interest, a term loan with a balloon, or a construction loans that are interest only for some period and then have a REFI option.
- Establish a clear loan application process: A clear and streamlined loan application process can help reduce customer frustration and improve the chances of loan approval.
- Implement strong underwriting standards: Ensuring that loans are underwritten according to strong standards and guidelines can help mitigate risk and improve loan quality.
- Monitor and manage loan portfolio: Regular monitoring and management of loan portfolio can help identify potential problems early and take corrective action to mitigate risk.
