What’s good for borrowers is good for lenders

We all understand that winning business requires making concessions to borrowers. Whether it’s lowering the cost of credit through competitive interest rates and fees, enhancements to the borrower experience, or even an overt rewards system, anything that entices consumers and businesses to go with your product is generally seen as a worthwhile investment.

But many credit providers see those concessions as instrumental—a means to an end that they would gladly avoid if they could. Borrowers (both businesses and consumers) have heightened their expectations as lenders expanded their offerings. They want greater flexibility in how they spend and repay debt, greater control over the account, and better rewards and long-term benefits in addition to the credit product itself. Understandably, many providers see these asks as a necessary evil.

Other providers, however, see an opportunity. Rather than viewing concessions to borrowers as part of a zero-sum game, they see them as a chance to align their incentives with the borrowers, turning what would otherwise be a one-time transaction into a long-term customer relationship.

What are borrowers asking for?

In this article, we’ll go over some of the “concessions” credit providers make and the opportunities they present. But in general, what are borrowers asking for? Across the 600+ clients we work with, we’ve seen some common themes:

• Flexibility in spending. Borrowers want different ways to finance different purchases, using installment loans for major purchases and a blend of cards and BNPL options for day-to-day transactions. If a single provider can offer all of these, they have a better chance of becoming the top-of-wallet choice.
• Flexibility in repayment. Whether it’s setting due dates to align with their pay schedule or skipping a payment when they fall on hard times, repayment options help borrowers to stay engaged rather than fall delinquent or default.
• Personalized products. Tailoring a product to individual borrowers helps create a financing option that works for them, increasing the chance that they’ll choose you over a less-convenient competitor.
• Self-service options. Submitting a ticket or waiting on a help line can be a pain. Borrowers just want to handle simple fixes themselves. As a bonus, that takes work off your agents’ plate.
• Financial planning. As younger borrowers adopt cards, loans, and other financing, they often look for products that offer long-term planning and support. A provider who capitalizes on that need might just win a lifelong customer.

Most credit systems could implement at least some of these borrower-friendly programs and strategies, but we’ve also heard many lenders complain that their previous systems fell short when it came to configuration and customization. On LoanPro’s modern credit platform, providers have seen tangible results that benefit their borrowers and their operation.

Flexible spending makes you the go-to choice for financing

Even if your credit limit can handle it, it would be inadvisable to buy a car on a credit card. And by the same token, it would be foolish to take out a $10,000 personal to manage normal expenses from month to month.

Borrowers at every income level understand that different types of credit have their own costs and benefits—interest, utilization ratios, reward points, and a host of other factors—and strategically use those credit options to their best advantage. Many of these borrowers would prefer a straightforward, single-provider experience: leveraging multiple credit types all from the same lender, allowing them to spend and borrow with flexibility while keeping payments streamlined and easy to manage.

If you offer automotive loans, for example, you know that each of your borrowers is regularly buying gas or taking their car in for oil changes and check ups, and often making larger purchases like new tires or major repairs. You also know that as they pay off their auto loan, they become owners of a major asset that can easily be used as collateral for further financing. Why not complement your auto loans with a secured card or BNPL product? Borrowers are already spending that money, just with other vendors, and pairing their financing products together gives you a unique advantage for a unified user experience.

Repayment options reduce default rates

When some accounts inevitably go delinquent, too many lenders simply ramp up their previous collections efforts—making more calls, sending more warnings and reminders, and tacking on more late fees. But more aggressive collections efforts do nothing for borrowers experiencing a surge in expenses or sudden loss of income, and instead annoy and alienate them during a period of financial hardship.

Borrower-friendly collections earns loyalty

Borrowers want a creditor who can cut them some slack. Just ask Best Egg, who launched two complementary hardship programs in the early days of the COVID-19 pandemic, and have since placed twice in the top-10 of J.D. Power’s awards for customer satisfaction in consumer lending.

Collections isn’t a zero-sum game, and borrower-friendly strategies are often bottom-line-friendly as well. Implementing programs and policies that give borrowers leeway and flexibility as they repay their debts will help them to stay engaged and repaying over the long term, rather than going delinquent or defaulting. And, as borrowers come to appreciate and trust those policies, they’ll be more likely to use you for their next credit product as well.

How can I implement repayment flexibility?

Here’s just a sample of the ways we’ve seen credit providers extend flexibility to borrowers in every financial situation:

• Temporary adjustments for short-term disruptions. Some life events disrupt short-term cash flow without permanently altering a borrower’s finances. When a borrower changes jobs, moves, or pays for a hospital trip, showing leniency can go a long way toward fostering loyalty. And minor edits to due dates or interest will scarcely affect earnings over the life of the account.
• Permanent adjustments to accommodate major changes. Major life changes (like a new child, divorce, or caring for a relative) can alter borrowers’ financial situations so drastically that they’re no longer able to pay in their contracted terms. But instead of letting them default, offer adjusted terms like a reduced payment amount or extended schedule.
• Roll line of credit balances into installment accounts. Some borrowers love the convenience of buying through a card or line of credit, but worry about mounting debt from minimum payments. Offer them the best of both worlds by rolling portions of their card balance into a manageable installment loan, working like a card-based BNPL program.
• Streamline adjustments with automations and a guided UI. On legacy platforms, even minor updates require significant manual work. LoanPro can cut down workloads through customer self-serve tools and automations, both fine-tuned to your credit and collections policies. When manual reviews are necessary, review queues and custom UI walkthroughs seamlessly guide agents through each step of your processes.

Personalized products and experiences

When a borrower looks for financing options, they’re not doing it because they’re just interested in having a stack of bills or a new piece of plastic in their wallet. Credit is an instrument they’re using to achieve some other end, whether it’s a single major purchase (like a car, house, smartphone, or degree) or a collection of smaller transactions.

Each of those situations is different: different immediate needs, different long-term repayment, different levels of urgency. While it is possible to anticipate some of these situations and create a matching product, limitations with data and configuration tools make it impossible to predict everything a borrower will want, let alone accommodate them.

But with modern credit platform, you can make your products work for a far wider range of consumers and businesses through personalization.

Make payments easy and automatic

It’s far easier to keep pre-delinquency accounts engaged, communicating, and repaying than it is to try and reclaim accounts that have already slipped 90 or 120 days into delinquency. Sound collections strategies can’t begin when a borrower has already missed payments—instead, they should take every effort to work with borrowers, adjusting when necessary to keep them on track with their payment schedule.

Here are three key repayment strategies to ensure payments succeed on time and in full:

• Enroll borrowers for AutoPays. Automatic payments are a win-win for borrowers and lenders alike. While you enjoy the benefit of more consistent payments and reduced manual work, you can pitch AutoPays to your borrowers as a convenient time saver. With LoanPro, they’re easy to configure, and can even be set up by borrowers themselves.
• Sync schedules to pay periods. Logging payments just after a borrower’s payday not only reduces the chance of a failed payment, but can also spare borrowers from overdraft fees. LoanPro can even support custom schedules for borrowers with irregular income.
• Leverage multiple payment profiles. If borrowers use multiple bank accounts or cards, you can leverage this to increase the chances for successful payments. LoanPro can chain together multiple payment profiles according to customer priority, first trying to draw from their preferred profiles before trying others.

Incentivize with personalized rewards

Stop me if you’ve heard this one before: 4 or 5% cashback on a narrow set of merchants, 2 or 3% on groceries or gas stations, and 1% on everything else. The market is flooded with card programs that are virtually identical to each other under the hood, with the only meaningful difference being whether you cash out interchange rewards on hotels or flights or some other retail partner.

Many borrowers would like greater control over rewards, allowing them to customize how or where they accrue points. You could allow borrowers to choose a few favorite merchants, where they earn greater rewards. Alex Johnson recently covered several card offerings with personalized rewards like discounted tickets for local sports teams or automatic investments.

And with tools like LoanPro’s transaction level credit™, you could even use the financial mechanics of the card to offer an additional layer of rewards and personalization. When borrowers spend at a favorite merchant, they might get a lower interest rate or interest abatement. These rewards help you stand out from lookalikes, and give borrowers a better reason to keep your card at the top of their wallet.

Tailor communications to each individual

Personalized communication does more than just keep borrowers informed—it keeps them engaged, building a long-term connection with your company. But crafting messages to each individual borrower will consume massive amounts of agents’ time, limiting the size of the portfolio you can support.

That’s why LoanPro has paired communication tools with our Automation Engine, creating a powerhouse solution for personalized, automated borrower interactions. You can automatically send physical mail, email, and two-way SMS, all tailored to individual accounts and borrowers.

Leveraging real-time account data, LoanPro generates and sends messages according to your own custom business logic. Without lifting a finger, you can send ongoing messages to customers reminding them of upcoming due dates, explaining payment options, and providing account-specific details like their payment history, payoff, and even calculated values for how their account will look after a payment is made. And when borrowers reply, LoanPro automatically flags their accounts, creating a queue for your agents to review and reply.

Drive efficiency and satisfaction through self-serve tools

Questions about your loan or credit card fuel concern and frustration for many borrowers. And whether they’re unsure about due dates, confused about payment options, or reporting a suspicious transaction, those concerns are all too often exacerbated by a weak customer experience. They might call a number, wait to connect to an agent, explain their issue, and then get reconnected to another agent, only to explain their issue again.

Even if you’re still looking at borrower-friendly strategies as a zero-sum game, inefficient customer service is a lose-lose. Borrowers waste their time growing frustrated over the phone, and your agents waste their time with mindless manual processes.

Instead, credit providers should give borrowers an option to self-service their accounts at every opportunity. Whether through an integrated tool like LoanPro’s customer portal or your own website or mobile app, you can give borrowers the power to view their own data, set up their own payments, and even request enrollment in your hardship programs.

If you have a clearly-defined rule for when a borrower qualifies for a due date change, why go through the motions of having them call an agent, who then has to look up their account and manually make adjustments? A self-serve tool could compare real-time account data against your own business logic and policies, allowing customers to make that change on their own without waiting for an agent.

Turn financial plans into a credit lifecycle

Generation Z is rapidly adopting credit cards, BNPL, and other financing tools. But having grown up through the great recession and the financial strain that followed COVID-19, they’re understandably wary of getting too deep into debt or neglecting their financial future. Unsurprisingly, then, many of them are drawn to products that offer not just near-term rewards like cash-back, but long-term financial opportunities: credit builder products, cards that automatically reinvest rewards, and other forward-looking products.

Credit providers who work with these borrowers can offer them not just a one-time product, but a plan for the future. If a borrower is considering buying a home in the next five or ten years, there’s no reason that a mortgage provider couldn’t help them now with accounts to strengthen their creditworthiness and gradually build up money for a down payment. Working with borrowers toward their long-term plans, creditors can win their loyalty and future business as part of a customer credit lifecycle.

Implementing borrower-friendly strategies

The policies that borrowers want don’t have to be an enemy to your bottom line. Skillfully incorporating them into your programs and policies will help you align your and your borrower’s long-term financial needs, giving them flexibility, personalization, and a plan for the future while also securing their engagement, repayment, and future business.

And yet, implementing any one of these strategies could pose a logistical challenge in and of itself if you’re limited to a rigid, inflexible platform. LoanPro’s modern credit platform has helped hundreds of credit providers launch borrower-friendly products and programs just like these. If you’re curious about helping your borrowers—and yourself—reach out to us. We’d love to hear what you have in mind, and to show you how LoanPro can make it happen.