GB2578733A - Computer-implemented method and system for dynamic loan calculation - Google Patents

Abstract

A computer-implemented method and a system for dynamically calculating a loan comprises receiving customer data and credit data 310, by an information exchange module of the system, wherein the received data relates to a borrower of a loan. A processor of the system assesses 320 credit, eligibility and risk scores on the basis of loan parameters and on the basis of the received credit data, and produces an offer of the loan 330. Loan data is stored, which comprises the loan parameters and the credit profile and risk profile of the borrower, in a database of the system. The information exchange module receives modification information 350, and the processor determines updated loan parameters 360 on the basis of the modification information, and calculates updated loan metrics 380.

Description

Computer-implemented Method and System for Dynamic Loan Calculation

Field of the Invention

The present invention relates generally to a computer-implemented method and system for automatically repricing a lending product during its term, as a result of utilising various metrics depending on the type and characteristics of the lending product, for example, changes in the credit profile of the borrower, changes in a loan to value assessment on physical property or mileage usage for a motor vehicle.

Background of the Invention

The following discussion of the prior art is intended to facilitate an understanding of the invention and to enable the advantages of it to be more fully understood. It should be appreciated, however, that any reference to prior art throughout the specification should not be construed as an express or implied admission that such prior art is widely known or forms

part of common general knowledge in the field.

Lending money commercially in the financial sector involves a borrower receiving a specified amount of money from a lender and agreeing to pay back the money according to the terms of the legal agreement which is entered into between the lender and the borrower to formally document the transaction. The transaction is deemed a "loan" and the agreement is deemed the "loan agreement".

Such an agreement can require the borrower to pay back the loan in one lump sum, but more frequently in commercial lending the agreement specifies regular loan repayments to be paid in monthly instalments or other intervals or partial repayments. Other loan agreements can specify that lower monthly payment instalments can be made provided that the borrower pays a larger amount as the last payment. This is known as a balloon payment. A loan is generally provided at a cost to the borrower, which is referred to as the interest which accrues on the loan during the lifetime of the loan agreement. The interest makes the loan profitable for the lender, while the borrower has the benefit of having made available to it the total loan amount at the beginning of the loan period.

In general, different types of loans exist, such as mortgages, credit card, debit card, consumer finance, and so on. Loans are offered as lending products, which can be categorised into unsecured and secured lending products. Unsecured lending products include personal loans, credit cards and point of sale consumer finance. Secured lending includes home loans, mortgages, car loans and leases and asset finance.

Lenders originate loans after making as assessment of the borrowers' risk profile, the affordability of the loan and, in the case of secured lending, the quality of any collateral. This assessment usually involves gathering information from the borrower and also from one or more consumer credit reporting agencies, also called credit bureaus, which is an agency that gathers account information from various creditors.

Lenders will then make a decision on whether to make a loan to the borrower based on their credit profile which provides a behavioural indication of the statistical likelihood the borrower will make timely contractual repayments under the loan agreement and at what price the loan will be offered.

Many lending products will be offered at a fixed interest rate for the term of the loan. Others may refer an external reference rate e.g. London Interbank Offered Rate, also called Libor, with a fixed margin over the reference rate for the term of the loan However, borrowers' credit risk profiles are not static and change over time depending on their use of credit e.g. total amount of credit, repayment behaviours, loan to income ratio, number of loans etc and this will be reflected in borrowers credit scores. Borrowers' credit scores are determined by a number of factors which also include the efficacy of information returned to the credit bureaus which collate borrowers' credit information and behaviour.

US 201 5/1 54625 Al discloses a computer system that enables a financial institution to award a fixed reward that may include one or more fixed components based on at least one payment criterion when a customer remits a payment in a timely basis. The payment criteria, for example, may include paying a minimum amount for each consecutive billing period in a timely manner over a predetermined calendar interval.

Thus, existing lending products result in borrowers with a poor credit profile at the point of loan origination, holding a loan at a fixed price above what they could achieve if their credit profile improved. In other words, the drawback of the prior art as described above is that an improvement of the borrower's credit score over the lifetime of a loan agreement which could be 5 years or more does not have any impact to the interest they have to pay.

The object of the present invention is thus to overcome the above detailed problems of the prior art, or at least to provide a useful alternative which allows borrowers to benefit from improvements in their credit scores.

Summary of the Invention

Accordingly, the invention provides a computer-implemented method and system for dynamic price calculation, as defined in the independent claims. Further advantageous embodiments are defined in the dependent claims.

The present invention addresses that problem by dynamically repricing a loan at set calendar intervals e.g. monthly or quarterly, depending on the borrowers' credit profile at that point in time. Borrowers demonstrating improving credit profiles will attract set reductions in the interest rate on their loan. As such they are incenfivised to demonstrate good repayment behaviour with the loan originator and other lenders.

Unless the context clearly requires otherwise, throughout the description and the claims, the words "comprise", "comprising", and the like are intended to be construed in an inclusive sense as opposed to an exclusive or exhaustive sense, i.e. "including, but not limited to".

Brief Description of the Drawings

Preferred embodiments of the invention will now be described, by way of example only, with reference to the accompanying drawings in which: Figure 1 shows a systematic flowchart of a method of the prior art.

Figure 2 shows a systematic diagram of a system of the prior art.

Figure 3 shows a systematic flowchart of a method according to the present invention. Figure 4 shows a systematic diagram of a system according to the present invention.

Detailed Description

This invention relates a method and system for automatically repricing a lending product during its term, as a result of changes in the credit profile of the borrower.

25 30 35 Referring to Fig. 1, the method 100 according to prior art shows an application process and is described in the following. The steps of method 100 are performed on a system 200 of the lender.

Step 110 is receiving customer data 260 and credit data from one or more consumer credit reporting agencies. The credit data comprises variables of the borrower, such as past credit repayment quality, and identification information to identify the borrower, and may also contain other data. For receiving information, system 200 comprises an information exchange module 230, which is configured to receive and send data via a network, which can be the internet.

Other data transmission option can include providing the information on a storage device, and other transmission technologies can include cellular networks, bluetooth and similar wired and wireless transmission types. The received customer data 260 and credit data can be stored in memory 220 and/or database 240 of the system 200.

Step 120 is assessing loan eligibility and/or risk on the basis of the loan parameters 250 and the received customer data 260 and credit data. The assessment of eligibility and/or risk is comprised of a risk scorecard predicated upon historic consumer credit market behaviours based on credit scores. The risk of a loan can then, for example, depending on a comparison with a predefined risk threshold, be assessed and results in a positive or negative result. In system 200 a processor 210 assesses the risk, and therefore it is configured to perform these tasks. Assessing the credit data and associated risks results in price determination which consists of an interest rate and, depending on the type of loan, fees, which the borrower must pay.

Step 130 is producing a loan offer if the result of step 120 of is positive. Producing the loan offer comprises storing the loan data, which is the loan parameters 250 and the loan values 270, in database 240 and can further comprise notifying the lender and/or the borrower of the result of the assessing and of the loan offer. Storing the loan data also comprises storing the borrower's risk profile in the database 240.

One embodiment of the present invention is detailed in method 300, which is shown in Fig. 3 and described in the following. Method 300 is an application process and is carried out on system 400 for example, which is shown in Fig. 4. System 400 is a system of the lender.

Step 310 is receiving customer data 460 and credit data from one or more consumer credit reporting agencies. The credit data comprises variables of the borrower, such as past credit repayment quality, and identification information to identify the borrower, and may also contain other data. For receiving information, system 400 comprises an information exchange module 430, which is configured to receive and send data via a network, which can be the internet. Other data transmission option can include providing the information on a storage device, and other transmission technologies can include cellular networks, bluetooth and similar wired and wireless transmission types. The received customer data 460 and credit data can be stored in memory 420 and/or database 440 of the system 400.

Step 320 is assessing loan eligibility and/or risk on the basis of the loan parameters 450 and the received customer data 460 and credit data. The assessment of eligibility and/or risk is comprised of a risk scorecard predicated upon historic consumer credit market behaviours based on credit scores. The risk of a loan can then, for example, depending on a comparison with a predefined risk threshold, be assessed and results in a positive or negative result. In system 400 a processor 410 assesses the risk, and therefore it is configured to perform these tasks. Assessing the credit data and associated risks results in price determination which consists of an interest rate and, depending on the type of loan, fees, which the borrower must pay.

Step 330 is producing a loan offer if the result of step 320 is positive. Producing the loan offer comprises storing the loan data, which is the loan parameters 450 and the loan values 470, in database 440 and can further comprise notifying the lender and/or the borrower of the result of the assessing and of the loan offer. Loan parameters 450 can comprise the borrower's credit profile, i.e. credit data, loan period, previous loans of the borrower, data in relationship to usage of the loan like vehicle or real estate information, and other relevant information for calculating the loan values. Loan values 470 can comprise interest rate, fees, loan period, data in relationship to usage of the loan like vehicle or real estate information, and other relevant information for the carrying out the loan over the loan period.

The following steps represent a periodic dynamic price review, which is exemplary detailed once only, but can be performed regularly or incidentally, as detailed in the following.

Step 340 is executed at predefined intervals, which can be specified in terms of time, e.g. weekly, monthly, quarterly, etc, or in terms of fixed dates, e.g. on the first, fifteenth or last day of every month, every third month, etc.. .More complex time variables are also possible, like on the first Monday which is not a holiday of every 3., 6., 9., and 12. Month of every year. Step 340 is requesting, by the processor 410, modification information from one or more external or internal information storage entities. This modification information can comprise information about the loan under review, its parameters, performance ratings, data about the remaining rates of the loan, data about other loans of the customer, or the like.

One example of the modification information could be updated credit information about the borrower from the one or more consumer credit reporting agencies. Other examples could be mileage telemetry readings from a vehicle to update the cost of a lease or loan on that vehicle or, a Loan to Value ratio on a property which might change over time. As an example, during the time as the loan amortises the mortgage may be automatically repriced to reflect lower risk for the lender. Modification information can also refer to data relating to the loan, i.e. information in relation to the currently running loan, like missed payments or extra settlements.

As an alternative, step 340 can be omitted, since the transmission of the modification information can be triggered from outside the system 400, such that the modification information is received without explicit request. If the method is executed based on arriving at a regular interval, the information can be requested. However, the method can also be executed because modification information is received, and in this case the modification information is not requested before receiving it. In this case the method does not have step 340.

Step 350 is receiving modification information via the information exchange module 430. In case of the modification information being updated credit data, the modification information can for example be received from the one or more consumer credit reporting agencies. If the modification information is mileage telemetry readings, the modification information could be received by the car itself via an electronic logbook, which is installed in the car and can send the information to the lender and/or the borrower in addition to storing it securely on a web-accessible database.

The modification information can also relate to another type of credit agreement, namely, Personal Contract Hire or Personal Contract Purchase. The same mileage telemetry readings may be used to adjust the monthly cost of an agreement when compared to the agreed mileage. For example, if the agreement specifies a vehicle may be utilised for e.g. 12.000 miles a year (i.e. 1000 miles a month) for a cost of £1,000 per month, this cost could increase or decrease each month depending on the actual mileage travelled as indicated by the telemetry readings. If the vehicle only travelled 500 miles in one month the cost could be reduced to £500 correspondingly.

Other loan types that could be repriced in a similar way include home loans and mortgages.

As the loan is repaid by the customer, the outstanding balance of the loan decreases, where the value of the property, used as security, remains constant or even increases over time. Thus, the ratio of the loan value to the value of the security, or Loan to Value ratio (LTV), decreases. As the value of the property exceeds the value of the loan by a greater extent this reflects a lower risk to the lender and as such may be priced lower. For example, a loan of £80,000 secured against a property valued at £100,000 gives an LTV of 80%, thus a lender may price this loan at 4.0%. As the customer repays the loan, the LTV decreases and after some time may reach 70%. At this point the lender may automatically or upon being prompted by his computer system for confirmation reprice the loan to 3.75%, for example. If the LTV decreases further, the loan price can be reduced further accordingly.

Other lending products that may be subject to a similar approach include, education loans, medical loans and finance and operating leases.

The modification information is processed by the processor 410 in processing step 360 to create updated loan parameters. For example, with an updated borrower's risk profile, the loan parameters are changed. Step 360 is determining whether the updated loan parameters have changed in comparison to the previous version of the loan parameters 450 stored in the database 440. With this it the eligibility of the present loan to be amended is reviewed. Such an amendment could be a price change. A change of loan parameters could be measured in that the risk has changed because the credit score of the borrower's risk profile has increases or decreased by a predefined number of points. Further criteria could be whether all due repayments have been made or how many have been missed since the last update. Further examples of criteria could be whether the borrower has or has not exceeded a certain predefined mileage with the car.

If it is determined in step 360, that the loan is not eligible for an amendment, step 370 is skipped.

If the eligibility of the present loan to a change has been determined in step 360, step 370 is calculating updated loan values on the basis of the updated loan parameters. Updated loan values can comprise an updated interest rate, which is stored together with all updated loan data in the database 440 and applied for the remaining term of the loan. The updated loan data can be calculated in dependence of the number of points the credit score has changed, the number of months without missing a payment or number of missed payments since the last update, extra settlements that have been paid by the borrower, remaining loan period, remaining loan amount, etc. Synergetic effects can be taken into account if more than one criterion is met, i.e. additional changes to the interest rate or the remaining loan period can be provided for any combination of criteria. Further additional changes can be provided for repeated changes over update intervals, i.e. if a certain number of payments have been missed again, or if repeatedly extra settlements have been paid. The changes to the interest rate and/or the resulting values like resulting interest rate, fees, and loan period may be limited by a predefined minimum or maximum lending rate or floor. The minimum or maximum lending rates can be defined as global values, applicable to all cases, or may be a result of the initial assessing the loan risk in step 320 and thus only be applicable for each case individually.

The range of amendments can as an option be restricted in that only an improvement or worsening of the credit score of the borrower will be taken in to account.

Optionally, a step 380 can be executed, which automatically notifies the lender and/or the borrower of the updated loan values calculated in step 370 and/or the resulting changed to the presently reviewed loan.

Fig. 4 shows a system 400 for executing the method as detailed above. System 400 comprises an information exchange module 430 for communication, and a processor 410, which is capable of executing the processing steps of the method. The processor can comprise modules for individual steps, for example a customer communications module or a dynamic price change eligibility module. The system 400 further comprises a memory 420 and a database 440. In the memory 420 and the database 440, all relevant data objects are stored. These objects can comprise loan product information describing the general framework of the loan, customer data 460, loan data, which comprises loan parameters 450 and loan values 470, and other items useful for the execution of the method. Such items can indicate the criteria for eligibility for a change, and variables regarding possible changes, for example minimum or maximum lending rates. Further, the database 440 can also contain customer account information, which indicates performance data of the customer's accounts regarding the presently reviewed loan and other loans, presently active as well as past ones.

Current financial products and the systems on which they operate do not allow this dynamic repricing to occur. Borrowers are forced to apply for a new product with the same or alternative lenders to achieve a lower interest rate but whilst the interest rate may be lower, it will remain the same for the lifetime of the loan without the ability to be further reduced should the credit profile of the borrower continue to improve. Lending products according to the present invention as described above provide incentives for borrowers to maintain a better credit behaviour, resulting in lower pricing for them and lower risk and/or costs for lenders. Lower pricing as a loan matures may also encourage borrower retention and thus require less investment in acquisition costs by the lender.

It will be understood that the steps of methods discussed are performed in one embodiment by an appropriate processor (or processors) of a processing (i.e., computer) system executing instructions (computer-readable code) stored in storage. It will also be understood that the invention is not limited to any particular implementation or programming technique and that the invention may be implemented using any appropriate techniques for implementing the functionality described herein. The invention is not limited to any particular programming language or operating system.

Reference throughout this specification to "one embodiment" or "an embodiment" means that a particular feature, structure or characteristic described in connection with the embodiment is included in at least one embodiment of the present invention. Thus, appearances of the phrases "in one embodiment" or "in an embodiment" in various places throughout this specification are not necessarily all referring to the same embodiment but may. Furthermore, the particular features, structures or characteristics may be combined in any suitable manner, as would be apparent to one of ordinary skill in the art from this disclosure, in one or more embodiments.

Furthermore, while some embodiments described herein include some, but not other features included in other embodiments, combinations of features of different embodiments are meant to be within the scope of the invention, and form different embodiments, as would be understood by those skilled in the art. For example, in the following claims, any of the claimed embodiments can be used in any combination.

Claims (14)

1. CLAIMS1. A computer-implemented method (300) for dynamically calculating a loan in a system (400), comprising: receiving (310) customer data (460) and credit data, by an information exchange module (430) of the system, wherein the credit data relate to a borrower of a loan; assessing (320), by a processor (410) of the system (400), a loan eligibility and/or risk by assessing loan values (470) on the basis of loan parameters (450) and on the basis of the received customer data (460) and credit data; and producing (330) a loan offer, by the processor (410), wherein producing (330) the loan offer comprises storing loan data, which comprises the loan parameters (450) and the loan values (470), in a database (440) of the system (400); characterized in that the method (300) further comprises: receiving (350), by the information exchange module (430), modification information; determining (360), by the processor (410), updated loan parameters on the basis of the modification information, and whether the updated loan parameters are different from the loan parameters (450) stored in the database (440); and calculating (370), by the processor (410), updated loan values, on the basis of the updated loan parameters.
2. 2 A computer-implemented method (300) according to any one of the preceding claims, wherein the method further comprises before the step of receiving (350) a step of requesting (340) at predetermined intervals, by the processor (410) via the information exchange module (430), modification information from one or more external storage entities.
3. 3. A computer-implemented method (300) according to any one of the preceding claims, wherein the step of assessing (320) loan values (470) further comprises calculating a risk, and determining a result indicative of the risk, by the processor (410).
4. 4. A computer-implemented method (300) according to any one of the preceding claims, wherein the loan parameters (450) comprise at least one of credit data, loan period, previous loans of the borrower, data in relationship to usage of the loan like vehicle or real estate information, and other relevant information for calculating the loan values.
5. 5. A computer-implemented method (300) according to any one of the preceding claims, wherein the modification information comprises at least one of updated credit data, data relating to a vehicle in connection with the loan, data relating to real estate in connection with the loan, and data relating to the loan.
6. 6. A computer-implemented method (300) according to any one of the preceding claims, wherein the step of producing (330) the loan offer and/or the step of calculating (370) updated loan values further comprises storing the loan data in a database (440) of the system (400).
7. 7. A system (400), for dynamic loan calculation comprising: a processor (410); a memory (420); an information exchange module (430); and a database (440); wherein the information exchange module (430) is configured to: receive customer data (460) and credit data relating to a borrower of a loan; the processor is configured to: assess a loan eligibility and/or risk by assessing loan values (470) on the basis of loan parameters and on the basis of the received credit data; produce a loan offer; store loan data comprising the loan parameters (450) and the loan values (470) in the database (440); determine updated loan parameters on the basis of the modification information, and whether the updated loan parameters are different from the loan parameters (450) stored in the database (440); and calculate updated loan values, on the basis of the updated loan parameters.
8. 8 A system (400) according to claim 7, wherein the information exchange module (430) is further configured to send modification information requests and receive modification information, and wherein the processor (410) is further configured to request at predetermined intervals the modification information from one or more external storage entities.
9. 9. A system (400) according to any one of claims 7 or 8, wherein the processor (410) is further configured to calculate a risk and determine a result indicative of the risk.
10. 10. A system (400) according to any one of claims 7 to 9, wherein the loan parameters (450) comprise at least one of credit data, loan period, previous loans of the borrower, data in relationship to usage of the loan like vehicle or real estate information, and other relevant information for calculating the loan values.
11. 11. A system (400) according to any one of claims 7 to 10, wherein the modification information comprises at least one of updated credit data, data relating to a vehicle in connection with the loan, data relating to real estate in connection with the loan, and data relating to the loan.
12. 12. A system (400) according to any one of claims 7 to 11, wherein the processor (410) is further configured to store the loan data in the database (440).
13. 13. A computer program product including a program for a processing device, comprising software code portions for performing the steps of any one of claims 1 to 6 when the program is run on the processing device.
14. 14. The computer program product according to claim 13, wherein the computer program product comprises a computer-readable medium on which the software code portions are stored, wherein the program is directly loadable into an internal memory of the processing device.