Loan management software: what a lender needs from day one

Most lenders open the system at disbursement. That is too late. The sanction letter carries the terms the whole loan depends on: amount, rate, tenure, interest method, processing fee and any moratorium.

Store the borrower file, guarantor details, collateral description, scanned agreement, identity proofs and the credit officer’s approval against the same loan number. Months later an auditor will ask for the sanction note, the signed agreement, the KYC copies and the valuation report, and the credit officer is usually on leave.

Make the interest method a field. Reducing balance, flat rate and daily accrual give different schedules from the same headline rate, and staff carrying the method in their heads apply it differently by branch. Nobody notices until a borrower compares.

A schedule is born at disbursement. Then it is edited for years. Part-prepayments, date shifts, holidays and restructures each rewrite the remaining instalments, so the instalment a borrower pays in month nine may differ from the printed one.

Keep every version. The system should show the schedule as issued, the schedule today, the reason for every change in between and the officer who approved each one. Without that trail, a borrower’s complaint becomes an argument between two spreadsheets, each edited by a different person on a different afternoon.

Ask how the software handles a broken-period first instalment and a prepayment that shortens tenure instead of cutting the instalment. Weak engines fail on these. A slow answer tells you something. So does a vague one.

A receipt is cash received. An allocation says where it went. The usual order is penalty, then fees, then interest, then principal, though each lender sets its own rule and the software must be configured to follow that rule.

The software should apply that rule on every receipt and print the split on the slip the borrower keeps, so the borrower can check it at the counter. Staff who allocate by hand produce different outcomes for the same payment, and the borrower’s statement then disagrees with the receipt book kept at the branch.

Handle awkward receipts early. A cheque that bounces needs a reversal that restores the schedule exactly as it stood, with the bounce charge added as a separate line against the borrower. An advance payment is different. It sits as a credit until the due date arrives, and it must never quietly shave principal before then, since that changes the interest charged.

Late penalty is where complaints start. Store the rule, the grace days and the calculation basis, then show the borrower a figure with the days late, the rate applied and the base amount.

A restructure is a formal change. It is no note on the file. It needs an approval record, the old terms beside the new terms, and a fresh schedule that starts from the agreed date.

Overdue age drives provisioning and collection effort. Buckets such as one to thirty days and thirty-one to sixty days should refresh every night from the schedule, so collectors start each morning with a fresh list. Month-end typing from a printout invites guesses.

On the final payment the system should produce a closure statement showing every instalment, receipt, waiver and charge, with a balance of zero that the borrower can read. Anything less invites a second visit.

Then comes the no-objection certificate and the release of collateral or post-dated cheques, and each carries a date, a releasing officer and the borrower’s signed acknowledgement.

Before you shortlist any product, take one real closed loan and ask the vendor to rebuild it end to end. If the schedule, receipts and closure papers match your file to the last instalment, you have a candidate worth a second demonstration.