Table of Contents
Primary Audience: Management Team, Administrators, Servicers
LoanPro has always supported installment loans, where a borrower takes out a sum of money and gradually pays it back through a predetermined payment schedule. But there's another type of lending out there: a line of credit.
Lines of credit are sometimes called open-ended or revolving credit, names which help explain how they work on a conceptual level. Rather than taking out a whole loan all at once, borrowers take credit out gradually, and are restrained by an upper limit on how much they can borrow at one time. That balance accrues interest, and the borrower makes regular payments over time. Typically, each billing cycle will end with a statement telling them how much they owe total, and a minimum payment that they must make each billing cycle. As they make payments and reduce their balance, they'll be able to borrow more money.
What is a Line of Credit Account?
Within LMS, line of credit accounts are distinct from loans – it's not just a different type of loan or a special setting you apply, but a whole separate entity, with values saved to different database tables and calculations that run differently. They do, however, work similarly to loans in some ways: You can set up tenant-wide defaults, create accounts, and service those accounts with a wide array of built-in tools.
Here's the basic process:
- Set up a Program. A program is a template for line of credit accounts. You'll set them up at the tenant level, and then use them to create individual accounts. Our article on Line of Credit Programs walks you through the details and available options.
- Create an Account. From the line of credit manager, there's a single button click to create a new line of credit account. The system walks you through choosing a program, entering account details, and linking customers. That process is explained in Create a Line of Credit Account. You can either leave all the settings you have saved in the program, or edit them for this specific account.
- Service the Account. Most of the servicing options available for installment loans will also be available on line of credit accounts. Our article Servicing Line of Credit Accounts explains those tools and how to access them.
Where do Line of Credit Accounts fit in LoanPro?
Line of credit accounts are built into LMS, so you don't need any special add-ons or subscriptions to create them. Lenders who have traditionally offered only installment loans now have a low-risk avenue for testing line of credit programs. Meanwhile, lenders who already offer line of credit accounts now have access to LMS and its many servicing tools.
Just like installment loans, line of credit accounts are regulated by both state and federal laws and agencies (or provincial and federal, for our Canadian friends). For instance, the amount of interest you can charge on these accounts may vary depending on your region, or accounts that meet certain criteria might be subject to regulations like the CFPB's Small Dollar Rule. Most credit card programs will be subject to the CARD Act.
We encourage you to work with your legal team to make sure all your lending practices are above board.
This Feature is Not
We should take care to clarify a few points:
- Line of credit accounts are not the same as loans in LMS. They share a lot of servicing tools and other features, but their calculations are fundamentally different. They're also distinct from a technical perspective, using different API endpoints and database tables.
- A line of credit isn't synonymous with a card. LoanPro purposefully keeps the account and the card distinct. This way, you can issue line of credit accounts that don't have use a card to access funds, or multiple cards linked up to a single account.
From here, you'll probably want to start building a program. Line of Credit Programs explains how to set them up, and links you to the other articles related to configuration. Then, Create a Line of Credit Account walks you through creating an individual account, and Line of Credit – Account Summary explains what you'll see once you've created them. Finally, Servicing Line of Credit Accounts goes over the tools you'll use to service and collect on the accounts.