How Does Payment Processing Work For Lending Companies?

‍

For lending companies, payment processing involves the management of loan payments from borrowers. This duty includes the collection, processing, and recording of these payments. 

‍

In this blog, we’ll provide a brief overview of the typical steps involved in payment processing for lending companies.

‍

Let’s dive in.

Payment Processing for Lending Companies: 3 Essential Steps

1. Payment Collection

Once a loan has been issued, underwritten, and approved, loan borrowers make payments in a variety of methods, including via online payments, in-person payments, checks, or direct debits from their bank accounts. When lenders receive these payments, it’s known as “payment collection.”

2. Payment Verification

It’s not enough for a borrower just to make a payment - lending companies actually need to verify and record each payment they receive. This process requires checking that the payment amount matches the loan agreement and confirming that the payment was made by the correct borrower. 

3. Payment Processing

Once payments are verified, they are processed. 

‍

This process involves depositing checks into a company’s merchant account, transferring funds from a borrower account, or processing debit, ACH or e-check payments. 

‍

To process payments successfully, lenders need a merchant account that allows them to receive payments securely and compliantly and in a manner that’s convenient for borrowers. 

‍

If payments are received from a borrower with multiple loans or different types of debt, the lending company receiving the payment must allocate funds to the appropriate accounts and ensure that the loan payments are applied to relevant account balances. 

What About Interest and Fee Calculation?

When lending companies receive payments, they must also calculate and apply any interest or fees due on the loan and then divide the payment between the principal amount and the interest and fees.

‍

To do this, the lending company must maintain detailed records of all payments received. These records include the date of the payment, payment method, payment amount, and allocation of funds.

‍

Lending companies also handle late payments. If a borrower's payment is not received by the due date, the company may assess late fees, send reminders, or initiate collections procedures as per the terms of the loan agreement.

‍

On a regular basis, lending companies reconcile their financial records to ensure all payments are properly accounted for. They also generate reports for internal use and regulatory compliance, including financial statements, tax reporting, and compliance with industry regulations.

‍

If a borrower overpays or requests a refund, lending companies need a process for handling these situations, which may involve issuing refunds or applying the overpayment to future installments. This is, again, where a lending company payment processing platform comes in, and why it’s so critical to find the right fit for your business. 

‍

Seamless Chex Makes Payment Processing For Lending Companies Easy

Payment processing for lending companies is a critical aspect of financial operations, as it ensures the proper collection, allocation, and record-keeping of borrower payments. Here at Seamless Chex, we’re proud to provide robust, competitive payment processing solutions for lenders. To learn more about our solutions or how we can help you, contact us today!