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What Is an Loan Origination System? A Beginner’s Guide

In the dynamic business world, “What is an LOS?” is a common question among merchants. To put it simply, LOS stands for “loan origination system.” But what is “loan origination system” then? Simply keep on reading!

This piece can help you achieve a better understanding of the topic. Additionally, you can also learn about the main features of any loan origination software and the advantages of such solutions.

What Is a Loan Origination System? Is It a Diamond in the Rough?

Understanding what a loan origination system is a venture well-worth its weight in gold. In the contemporary world that is built on financial relationships, loan origination has proven to be one of the surviving practices over the long history of commercialization. And with what technology has to say about it, it has not only survived but also thrived. 

What Is Loan Origination?

Before exploring the nitty gritty of loan origination systems, it would do a world of good to get back to basics. This begs the question, “What is loan origination?” Simply put, loan origination is the process of applying for a loan from a lender, the eventual response to the borrower (accepting or declining the transaction) and everything in between. It is the process by which the borrower originates an application to obtain a loan, mortgage or other funds from a lending institution, hence loan origination. This then necessitates a thorough consideration of several factors, such as the applicant’s credibility and creditworthiness, all of which contribute to the decision of disbursing the loan or rejecting the application. 

What Is Loan Origination Software?

Having established what loan origination is, it becomes easier to consider the million-dollar question at hand – what is an LOS? A loan origination system is simply a software solution built to automate the loan origination process. It is a tool that digitizes and manages loan origination processing from start to finish, with little to no human interference. This solution is one that not only promises to revolutionize services for banking institutions and credit agencies but vastly improves the service experience for borrowers as well. In that regard, one might wonder what features loan origination software supports. Some of them include:

  • Security Framework: One of the major preoccupations of financial institutions and credit facilities is the security of data in compliance with regulatory procedures. For loan management systems to effectively function, they are equipped with tight cybersecurity measures. Such measures reduce the occurrence of potentially consequential data breaches.
  • File Management System: Loan management systems are designed to take in and process data and information with a view to separating qualified loan applications from unqualified ones. This is possible thanks to the system’s in-built file manager. Any effective file manager uses preset criteria to determine the most credible applications. This function also makes an inventory of documents, such as credit reports and application data, easily accessible to authorized staff.
  • Criteria Algorithm: This feature introduces the human factor to the loan generation software’s underwriting activities. It allows the lender to preset qualification criteria. This is vital as the system will use the criteria to consider the submitted applications and determine the ones that the lender would want to proceed with.
  • Service Outlet: The service outlet is the first point of contact for customers with the digital system. The automated loan origination process begins here. It can appear as a self-service site, application, or form through which the borrower sends in an application. This part of the system allows instant application for a loan, updating loan information such as interest rates in real time, as well as tracking the progress of an existing application through the dashboard. The outlet also supports any user interface (UI) solution, which might be a chatbot, live chat, or both. 
  • Integration API: This feature allows the loan origination software to operate with other applications. This is a vital characteristic of any LOS, as such integration API enables compatibility and makes the LOS limitlessly efficient. 

What Is a Loan Origination Software Solution in Business Settings?

The prospects of embracing revolutionary and embedded finance systems face skepticism. However, considering the benefits on offer makes such technology more appealing. In the case of LOS, there exist a number of benefits that make an impressive case for it before credit-based financial institutions. It becomes easy to notice advantages for businesses, such as:

  • Efficiency: By automating the loan origination process, loan origination systems effectively bring human error and drawbacks down to a minimum. This improves the quality and speed of lending services. It also enables round-the-clock and instant support without sacrificing accuracy and precision. Moreover, its compatibility with workflow integrations and other tools makes it easier to track employee and customer data. Thus, the incorporation of a LOS system vastly improves the quantity and quality of work.
  • Security and Compliance: Data security and regulatory compliance are major preoccupations in the financial industry. The good news is that loan origination systems come with intricate and airtight security infrastructure. For example, cloud storage systems can prevent fraud and security breaches. Additionally, they can be easily programmed to operate within the relevant regulatory framework. The flexibility and unified lending process pathway that loan origination systems offer make them an even more tantalizing option for financial institutions.
  • Improved Financial Standing: When it is all said and done, the aim of providing quality services is to satisfy customers. This not only translates to customer retention but would also lead to a rise in patronage from referrals. This can bring significant upturn in financial fortunes.


Yet again, what is a LOS? A LOS is the future of lending. Overall, the deployment of a loan origination system translates to a win for both businesses and customers, making it the ultimate tool for lenders to consider. And with the tending of financial ecosystems globally, the 100% adoption of such novel technology is a matter of when, rather than if.

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