Defining the loan purpose
Loan Purpose is the underlying reason for the borrowers to apply for a loan, and is recorded for reporting. This is based on the selection from a list of values defined by the lender. Defining a purpose for the loan impacts the terms and conditions that lenders apply as a part of the loan arrangement and plays a role in determining the type of interest rates that the lender is willing to extend to the applicant.
Benefits of loan purpose
The following table displays the benefits of loan purpose to lenders, borrowers, and lending institutions:
| Lender | Borrower | Lending Institution |
|---|---|---|
Identifies the reason for the financing and provides important information in determining risk since the level of risk has a direct impact on whether or not a loan is approved. In the event of an approval, the interest rate is extended, and the lenders can protect their interests with greater efficiency. For example, when the purpose of the loan is to purchase a home, the lender can assess if the borrower can repay the loan according to the terms defined in the CL Contract. | Leads to paying lower interest rates for the duration of the loan term, possibly obtaining more advantageous repayment terms, and even reducing the fees and related charges that apply to the granting of the loan itself assuming that the applicant can provide information that convinces the lender that the loan is likely to be fully repaid. The value of any collateral attached to the loan agreement has sufficient worth to settle the outstanding debt in the event the borrower is unable to service the debt, the opportunity to secure the best possible terms is present. | Makes an impact on the amount that the lender is willing to extend, the interest rate that will apply, and even the terms that will govern the loan for its duration. |
Prerequisites
None.
Steps
Perform the following steps to define the loan purpose:
Log in to your Salesforce account.
Click Servicing Configuration.
Go to Product, Product Management.
Click Loan Purpose.
The Loan Purpose page is displayed.
Click Define New Loan Purpose.
The Define New Loan Purpose page is displayed.
Specify the Loan Purpose Name.
Specify the Loan Purpose Code.
Specify the Description.
Click Save.
The defined loan purpose details are displayed in the Loan Purpose Details page.
You can view the defined loan purpose as a lookup while creating a CL Contract.