Business Rules Engines in Loan Calculators

Łukasz Niedośpiał
March 5, 2024
Blog

In the United States it takes around 42 days to close a loan application. An average loan file contains about 700 pages of documents. What's more, 1 in 4 data breaches is a consequence of human error during the process.

How can you speed up the process, avoid human errors, and comply with ever-changing regulatory frameworks?

Business Rules Engines are one way to go about it. How can you elevate BREs in your company for profit? Read on.

How Business Rule Engine can Enhance Loan Calculators?

The evolution of Loan Origination Systems (LOS) has been significantly influenced by market changes and tighter regulations, leading financial institutions to recognize the need for modernization due to the outdated technology and maintenance challenges of existing systems. The result is a landscape filled with inefficient and incompatible systems that hinder operational efficiency and increase maintenance costs. 

Modern lenders are now prioritizing innovative technology that offers a unified platform approach to provide a holistic view of borrowers and manage regulatory compliance more effectively. This shift aims to enhance operational efficiency and improve the borrower experience by overcoming the limitations of disjointed lending platforms that contribute to operational inefficiencies, increased IT expenditure, and hindered customer service.

A Business Rule Engine is a powerful tool that automates the application of predefined rules in business operations, particularly in complex decision-making scenarios. It enables organizations to manage rules effectively, ensuring that business processes are conducted consistently and in compliance with regulatory standards.

In the financial sector, BREs have evolved from simple rule-based systems to complex platforms capable of handling intricate loan agreements, underwriting processes, real-time decision-making, and risk assessments. This evolution reflects a broader shift towards digital transformation in the lending industry, driven by the need to meet increasing customer demands and navigate the complexities of regulatory compliance.

Application of BREs in Loan Calculators

Enhancing Loan Origination

Business Rules Engines (BREs) revolutionize the loan origination process by automating decision-making and streamlining operations. By embedding predefined rules into loan calculators, BREs enable financial institutions to manage rules effectively, ensuring a faster, more accurate loan approval process.

This automation reduces manual effort, accelerates the underwriting processes, and improves efficiency, leading to increased customer satisfaction and competitive advantage in the lending industry.

Adjusting To a Borrower In Real Time

Rules engines can dynamically adjust loan terms by analyzing the borrower's credit history, risk profile, and personal data in real time. This technology allows for the automation of decision-making processes, enabling lenders to offer personalized loan conditions. By evaluating comprehensive data, rules engines can determine optimal loan terms, interest rates, and repayment schedules, ensuring terms are tailored to each borrower's unique financial situation and risk level, leading to more accurate and fair lending decisions. Which, in effect, lead to a better customer experience.

Examples of BRE in Action

In practical terms, BREs apply complex algorithms to evaluate data from loan applications, credit reports, and customer data to assess credit risk, market risk, and operational risk. This capability allows for real-time risk assessment, fraud detection, and regulatory compliance checks during the loan application process. 

By automating these checks, BREs minimize the possibility of human error, ensuring that all decisions are based on the most current and comprehensive information available, thus facilitating informed decisions and optimizing asset allocation.

Do you have a use case for business rule engines? Contact us, and we'll discuss how can we implement and execute business rules engine in your company.

Benefits of BREs in Loan Calculators

For banks to enhance competitiveness, compliance, and efficiency in loan origination, they need to reduce manual document handling, automate workflows, and facilitate information sharing across departments. A comprehensive system that integrates user authentication, authorization, encryption, controls for destination and output, along with audit trails, is essential. This ensures the security and integrity of customer information, whether the data is stored, in transit, or accessed on any device.

Benefits of implementing Business Rules Engine in Loan Calculators are:

  • Improved Risk Management: By automating risk assessment, BREs provide comprehensive insights into credit risk, market risk, and operational risk, enabling financial institutions to make informed lending decisions based on a borrower's income, credit history, and loan amount.
  • Enhanced Regulatory Compliance: BREs ensure compliance with various regulatory requirements, including anti money laundering laws or the General Data Protection Regulation (GDPR), by executing business rules that adhere to the latest laws and standards, thus protecting institutions from potential legal and financial penalties.
  • Optimized Credit Scoring and Underwriting: BREs leverage decision tables and sophisticated algorithms to evaluate credit score and credit reports more accurately. It's streamlining the credit scoring, speeding up the process of checking borrower's creditworthiness, and underwriting process, leading to more reliable loan approval decisions.
  • Increased Efficiency and Productivity: By automating the execution of business rules, reducing manual effort in the loan origination process, BREs significantly reduce processing times and improve the efficiency of business operations.
  • Enhanced Customer Experience: BREs facilitate a faster loan origination process and loan approvals, enhancing the borrower's experience by providing timely responses and personalized loan agreement terms based on comprehensive risk evaluation and asset allocation strategies.
  • Faster Decision Making Process: business users can make vital changes to adapt software systems to changing market conditions without IT dependency.

Implementing BREs in Loan Calculators

Integrating Business Rules Engines (BREs) into loan calculators introduces deeper challenges beyond initial setup and training. These encompass adapting to rapidly evolving financial regulations, maintaining data integrity during migration from legacy systems, ensuring system scalability to handle increasing volumes of loan applications, and integrating with diverse data sources for comprehensive risk assessments. 

Moreover, achieving a balance between automation and human oversight to maintain loan quality and compliance, while also addressing cybersecurity concerns to protect sensitive customer data, are crucial. Overcoming these hurdles requires a nuanced approach, including robust project management, continuous stakeholder engagement, and a commitment to ongoing system evaluation and enhancement.

Moreover, achieving a balance between automation and human oversight to maintain loan quality and compliance, while also addressing cybersecurity concerns to protect sensitive customer data, are crucial. Overcoming these hurdles requires a nuanced approach, including robust project management, continuous stakeholder engagement, and a commitment to ongoing system evaluation and enhancement.

Integrating Business Rules Engines (BREs) into loan calculators involves several challenges:

  • Technological Compatibility: Ensuring the BRE is compatible with existing IT infrastructure and software systems.
  • Data Migration: Safely transferring existing data into the new system without loss or corruption.
  • Staff Training: Equipping employees with the necessary skills to use and manage the BRE effectively.
  • Change Management: Managing resistance to change within the organization and ensuring smooth adoption of the new system.
  • Cost: Managing upfront costs associated with purchasing, integrating, and maintaining BRE software.
  • Regulatory Compliance: Ensuring the BRE complies with all relevant financial and data protection regulations.

Best Practices for Implementation:

  • Strategic Planning: Define clear objectives and requirements for BRE implementation.
  • Collaboration with Vendors: Work closely with BRE vendors (like Higson) for seamless integration and support.
  • Training and Development: Invest in staff training to ensure they are proficient in using and managing the BRE system.
  • Continuous Evaluation: Regularly assess the BRE system's performance and make necessary adjustments to optimize its effectiveness.

Conclusion

The integration of Business Rules Engines (BREs) into loan calculators represents a significant advancement in the loan origination process. By improving risk management, ensuring regulatory compliance, optimizing credit scoring and underwriting, increasing operational efficiency, and enhancing customer experience, BREs offer financial institutions a formidable tool to navigate the complexities of modern lending. Implementing BREs, despite potential challenges, presents an opportunity for institutions to achieve a competitive advantage, underscoring the importance of strategic planning, collaboration, and continuous evaluation in the adoption process.

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