Audience: Loan Servicer or Collector, Developers, Loan Servicing/Collections Managers, Administrator
As a lender, you might want to grow your lending portfolio by offering different lending products, but you don't want to have multiple loan management systems (LMS). At LoanPro we offer four loan categories (referred to in our software as loan classes) and four loan types under each. Many different products can be configured under each loan type, making it easy to service a diverse loan product portfolio within one LMS.
This article explains the four loan types and how they are used. If you already understand loan types and want an intermediate article, read Pre-Configured Loans to learn about how companies can set up different loan types.
What are the Loan Types?
There are four main types of loans, each having different features and benefits. The main types are credit limit, flooring, installment, and lease. A lending company might want to offer consumer loans as installment loans and automobile leases at the same time, that company would need two loan types. LoanPro helps lenders accomplish this. The four types of loans we offer are:
A credit limit loan has a set maximum amount of money that can be borrowed (credit limit). Regular payments are made on the loan, but the funds can be advanced throughout the life of the loan. This is different than a revolving line of credit because a credit limit is designed to close at some point in the future.
A flooring loan helps a company stock their inventory. For example, a brand new car dealership needs to fill their "floor" with cars. To do this, they could get a flooring loan that funds a large purchase of cars so the new dealership has cars to sell. These loans are typically paid back quickly (most come due around 90 days). A payment on a flooring loan is called a curtailment.
Installment loans are the most common types of loans. Installment loans can finance many things (cars, technology, etc.).These loans have a definite length and repayment schedule. This means the loan will be repaid by regular, predetermined payments or installments.
When a customer signs a lease they are not agreeing to pay on the principal value, they are agreeing to make payments that cover the depreciation of an asset. For example, many people lease cars, rather than get an installment loan or purchase them, because cars can lose value over time. Lease payments include a lease charge or a rent charge portion which is how the lender makes a profit. The ownership of a lease is never transferred to the lessee.
Where Do Loan Types Fit in Lending
In LoanPro's LMS, there is a specific hierarchy to help classify loans. Loan Class is the top-level category, which includes Consumer, Auto, Real Estate, and Other as options. Within each loan class, you can choose a Loan Type. For each loan type, you can choose a Calculation Type and set the settings that will determine how the loan will perform calculations.
This Feature is Not
The classification of Loan Types is far from the only category or configuration option within LMS. A nearly unlimited number of products can be created in LoanPro using different terms and settings combinations. If you are looking at this article and wonder if LoanPro can service the lending products you provide, the answer is almost certainly, yes.
To start creating loans read Create New Loan or Setup Terms. For a more detailed breakdown of installment loans, read Amortized Loan Overview. If you want to learn more about leases, Typical Lease Calculations will provide more information. Or even more detail in Loan Type Specific Defaults.