Category: KPIs


Cost Per Funded Loan: The Ultimate Efficiency Hack for Lenders

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This blog post unravels the magic behind a powerful metric called Cost Per Funded Loan (CPFL).

Whether you’re a seasoned lender or just getting started, understanding and optimizing your CPFL could be the game-changer that skyrockets your efficiency and profitability!

🚀 So buckle up, and let’s dive deep into the world of CPFL. Your journey toward smarter lending begins here! 💼💎🎯

As a highly regarded advisor & consultant specializing in balance sheet lenders serving B2C markets, particularly credit-challenged consumers experiencing financial distress, I emphasize the significance of comprehensive Key Performance Indicators (KPIs) in lending operations.

Monitoring KPIs is indispensable to thoroughly understand your current standing, trend lines, and necessary strategic adjustments.

The data derived from these metrics offer a tangible and real-time measure of success, allowing you to enhance profitability and achieve other key objectives of your organization.

Here is an overview of these pivotal performance metrics:

1. Loan Origination Metrics: These metrics offer insights into the early stages of the lending process, such as application, initiation, underwriting, closing, and funding.

They provide a snapshot of the efficiency and effectiveness of your loan origination processes.

2. Loan Servicing Metrics: These indicators pertain to the ongoing administration of your loan portfolio, including payment processing, account maintenance, and escrow management.

Monitoring these can significantly improve the efficiency of your servicing operations and increase customer satisfaction.

3. Default Servicing Metrics: These metrics relate to loss mitigation, collections, foreclosure, and repossession.

Regularly evaluating these indicators can help you anticipate and manage loan defaults and minimize the financial impact.

4. Financial Performance Metrics: These metrics encapsulate the financial health of your lending operations, including profitability, liquidity, solvency, efficiency, and valuation.

Keeping a close eye on these can ensure your business’s overall financial viability and competitiveness.

As a lender serving credit-challenged consumers in sudden financial emergencies, these KPIs can help you better support your clients while maintaining your organization’s financial stability and growth.

Ensuring these metrics are thoroughly monitored and acted upon can position your business as a responsible and successful lending institution in this challenging market.

Let’s take a detailed look at the KPI: “Cost Per Funded Loan” (CPFL).

Cost Per Funded Loan (CPFL) is a measure of the total costs associated with generating and servicing a loan divided by the total number of loans that are successfully funded.

Costs can include direct expenses such as underwriting, acquisition, servicing, capital, and overhead expenses.

CPFL is an important efficiency metric for lenders. It helps them understand the cost efficiency of their loan origination and servicing processes.

High CPFL may indicate inefficiencies, while low CPFL can signify a well-optimized lending operation.

How to Measure:
CPFL can be calculated by taking the total costs associated with the loan process (both direct and indirect) and dividing it by the number of loans that have been successfully funded during a given period.

Potential Risks:
One of the major risks of focusing on CPFL is the potential for over-optimization.

If a lender focuses too much on reducing CPFL, they may cut important processes or controls, leading to a poorer quality loan portfolio and potential increased losses down the line.

Improvement Strategies:
Improvement strategies could include streamlining loan origination and servicing processes, leveraging technology for automation, improving underwriting efficiencies, or optimizing marketing spend.

Benchmarking for CPFL can be challenging because it can vary greatly depending on loan size, type of loan, target customer, geographical market, and lender’s business model.

However, industry studies or peer groups can provide some insights.

Consider reviewing the earnings reports for a few of the publicly traded lenders. World, Curo, and Enova are just a few.

Responsible Department/Role:
The Finance and Operations departments typically have a major role in managing and improving CPFL.

The Marketing department is also involved, especially regarding acquisition costs.

CPFL is interconnected with other metrics such as Acquisition Costs, Operational Efficiency, Default Rate, and Profitability.

Reporting Frequency:
CPFL is typically reported on a monthly basis, but the frequency may vary based on the lender’s needs and the volatility of the costs and loan volumes.

Data Source:
The data sources for CPFL include accounting systems for cost data and loan management systems for loan volume data.

Change Over Time:
Ideally, lenders would like to see CPFL decrease over time, indicating increasing efficiency in their lending operations.

CPFL could have seasonal patterns, such as higher costs during peak loan demand periods due to increased staffing or marketing costs.

If loans are grouped into different risk or product tranches, each tranche might have a different CPFL, reflecting varying costs and efficiencies.

Associated Costs:
The primary associated costs are the direct and indirect costs of loan origination and servicing, which can include underwriting, staff, technology, capital, and overhead costs.

Impact of Regulatory Changes:
Changes in regulatory requirements can impact CPFL, as they may require changes in the loan origination or servicing processes, potentially increasing costs.

Historical Context:
CPFL can vary over time based on changes in the lending market, technology, and regulatory environment.

Shareholder/Ownership Impact:
Shareholders typically prefer a lower CPFL, which indicates more efficient operations and can lead to higher profitability.

Sensitivity Analysis:
Sensitivity analysis for CPFL might involve modeling different cost or volume scenarios to see how changes in these factors might impact CPFL.

In conclusion, CPFL is an important KPI that helps balance sheet lenders understand and manage the cost efficiency of their lending operations.

As with any KPI, it needs to be viewed in context and in conjunction with other metrics to provide a comprehensive view of performance.

We’ve nearly completed our breakdown of the 70 KPIs subprime lenders must have to manage their loan portfolios!

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Leveraging the Refinancing Rate [RR]: A Powerful KPI for Subprime Lenders


The Refinancing Rate (RR) is a crucial Key Performance Indicator (KPI) for subprime lenders seeking to understand their loan portfolio’s performance. The RR reveals the proportion of loans that get refinanced within a specific period, providing valuable insight into the sustainability of your portfolio.

The Importance of Refinancing Rate

The Refinancing Rate [RR] is particularly significant for subprime lenders due to subprime borrowers’ inherently volatile financial situations.

A high RR could signal an urgent need to recalibrate loan amounts, terms, or interest rates to better suit the borrowers’ repayment abilities.

By effectively managing the RR, lenders can enhance the profitability of their refinancing ventures, provided they balance the associated risks appropriately.

To illustrate, suppose a lender has 100 outstanding loans at the beginning of the year; by the end, 20 of these loans are refinanced.

The RR for that year is 20%, signifying that one in five loans was refinanced.

Opportunities Through RR

Refinancing provides an effective customer retention strategy.

If a borrower struggles with their repayment plan, refinancing allows an adjustment to their plan, fostering long-term customer relationships and potentially enhancing profitability.

Moreover, refinancing often involves fees, creating an additional revenue source for lenders.

However, lenders must balance this with the risk of overburdening borrowers, potentially leading to loan defaults.

Subprime lenders can also benefit from offering variable interest rates, adjusting rates in response to economic fluctuations to maintain income from interest.

Refinancing Rate Challenges

Improving the RR comes with several hurdles.

Regulatory frameworks governing subprime lending can impede a lender’s ability to manage their RR.

Technological constraints can also affect a lender’s capacity to assess borrowers’ creditworthiness accurately and set suitable loan terms.

Finally, lacking skilled personnel can hinder the lender’s ability to manage the RR effectively.

Deep-Dive: RR by Tranches

Subprime Lenders can achieve a deeper analysis by reviewing it tranche-by-tranche.

This method involves categorizing the loan portfolio based on risk attributes like loan size, loan term, borrower’s credit score, repayment history, or the type of financial emergency facing the borrower.

This detailed analysis can help identify segments with higher refinancing prevalence, pinpoint areas of higher risk, or highlight segments where loan terms or amounts may need adjustment.

Investor Perspectives

Investors may interpret a high RR as a positive or negative sign, depending on their risk tolerance.

Some may appreciate the high-interest rates and fees that come with frequent refinancing, while others may perceive it as a sign of poor loan underwriting and high risk.

Untapped Opportunities

Lenders can enhance their revenue by offering credit insurance or other loan protection products as part of a refinancing package.

This offers added security for the borrower and more income for the lender.

Additionally, implementing technological innovations like AI and machine learning can help predict borrower behavior and assess refinancing risk more effectively.

These predictive analytics can optimize the RR, enhancing profitability.

Advanced RR strategies & improvements.

1. Enhanced Data Analytics: Lenders should consider investing in sophisticated data analytics tools. By utilizing big data, lenders can uncover hidden patterns and correlations that could provide deeper insights into borrowers’ behavior and their likelihood to refinance. This can help lenders to identify potential risks earlier and make necessary adjustments proactively.

2. Behavioral Economics: Incorporating principles of behavioral economics into loan strategies could help manage the RR. By understanding what motivates borrowers’ behavior, lenders can design incentives that encourage timely repayments and reduce the need for refinancing.

3. Customer Education: Another potential strategy could be customer education. Lenders could offer their customers educational resources on financial planning and management, helping them understand their loan commitments better and reducing the need for refinancing. This approach could also foster a stronger lender-borrower relationship, enhancing customer retention in the long run.

4. Portfolio Diversification: While the article discussed viewing RR on a tranche-by-tranche basis, it didn’t explore the possibility of portfolio diversification to manage RR. Lenders can hedge their risks and better control their overall RR by maintaining a diverse portfolio with loans of different amounts, terms, and interest rates.

5. Strategic Partnerships: Subprime lenders might consider forging strategic partnerships with fintech companies or other financial institutions. These collaborations could offer advanced technological solutions and shared knowledge that helps improve the lender’s ability to manage their RR.

"Reacts" vs. "Refinance Rates"

The term “reacts” in the context of subprime lending typically refers to a situation where a borrower who has fully paid off a loan (or is close to doing so) initiates a new loan with the same lender. 

Essentially, “reacts” reflect the repeat business with existing customers, which is crucial for lenders as it can reduce customer acquisition costs and signify a positive lender-borrower relationship.

On the other hand, the “Refinancing Rate” (RR) is a KPI that measures the proportion of existing loans that get refinanced into new loans within a given time. 

Refinancing means replacing an existing debt obligation with a new one under different terms. 

Borrowers may refinance their loans for several reasons, such as taking advantage of lower interest rates, consolidating multiple debts into one, or extending the repayment period to reduce their monthly payments.

While both “Reacts” and “Refinancing Rate” deal with the continuation of a financial relationship between the lender and borrower, they represent different aspects:

  1. Different Motivations: Refinancing usually occurs due to changes in the borrower’s financial situation or market conditions (e.g., lower interest rates), prompting the borrower to seek more favorable loan terms. “Reacts,” on the other hand, are typically driven by the borrower’s need for additional credit, often after successfully completing a previous loan repayment.
  2. Implication on Credit Risk: A high Refinancing Rate might suggest that borrowers are struggling to repay their existing loans under the initially agreed terms, indicating higher credit risk. In contrast, a high rate of “reacts” often signifies that borrowers can repay their loans and are willing to continue their relationship with the lender, which can be a positive signal for credit risk management.
  3. Revenue Generation: Both “reacts” and refinancing present opportunities for revenue generation. Refinancing could generate income from fees associated with the process, and the newly refinanced loan could carry higher interest if market conditions have changed. Meanwhile, “reacts” represent a new lending opportunity, which means new interest income for lenders.

As a subprime lender, managing and monitoring both metrics is crucial.

A balanced approach to encouraging “reacts” while managing the Refinancing Rate could result in a healthy, sustainable loan portfolio. 

Lenders should strive to foster relationships that encourage repeat business (“reacts”) and simultaneously ensure that their loan terms are sustainable and manageable for borrowers to keep the Refinancing Rate reasonable.

Both these metrics can provide valuable insights into the lender’s performance, the profitability of their loan portfolio, and their borrowers’ financial behaviors and needs.

By understanding the interplay between “reacts” and the Refinancing Rate, subprime lenders can make more informed decisions to maximize profitability and minimize risk.


Though a crucial KPI for subprime lenders, the RR shouldn’t be viewed in isolation. It should form part of a comprehensive analysis that includes other KPIs and business aspects. To optimize the RR, subprime lenders could invest in more sophisticated technology, upskill their staff, or adjust their loan terms to suit borrowers’ abilities better.

A well-managed RR can strengthen customer relationships, control risk, and augment revenue streams, making it an essential tool for strategic decision-making in subprime lending.

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KPI: Cross-Sell Ratio [CSR] for Subprime Lenders

Boost Your Bottom Line: Cross-Sell Ratio Tactics for Subprime Lenders

Definition and Precise Measurement of CSR:

The Cross-Sell Ratio refers to the ratio of the number of products or services sold per customer.

It measures how effectively you can increase the number of services or products a single customer uses. For your lending institution, it measures the number of different loan products, such as installment, payday, or title loans, that a single customer uses.

To calculate the Cross-Sell Ratio, divide the total number of loan products or services sold by the number of customers.

For example, if you have sold 500 loan products or services to 250 customers, your Cross-Sell Ratio would be 500/250 = 2.0. This means that, on average, each customer uses two different loan products or services from your subprime loan business.

Current KPI Values:
As of my last consultation, the average Cross-Sell Ratio for subprime lenders in the market ranged between 1.5 to 2.0.

However, this general average can differ based on the specific market and lending strategies employed.

Aiming for continuous improvement rather than chasing a set number is best. Progress could be measured weekly or monthly, depending on your organization’s capacity and resources.

Specific Challenges:

One of the biggest challenges with improving the Cross-Sell Ratio requires a deep understanding of your customer’s needs and financial capacities.

It also requires a diverse range of loan products catering to these different needs.

Regulatory hurdles, especially those regarding predatory lending practices, can limit the type of products you can offer.

Technological issues related to CRM and data analytics could also limit your ability to track and improve this KPI.

Furthermore, staffing limitations may limit your ability to follow up with customers and offer additional loan products.

Investor Expectations:

Investors view a high Cross-Sell Ratio as an indication of customer satisfaction and loyalty.

It shows that your business can meet a broad range of customer needs, which could lead to increased revenues and profitability.

However, concerns about over-lending and customers becoming over-indebted in the subprime market could arise. Thus, a balance must be maintained.

Additional Commentary

While focusing on CSR, it’s vital to consider cross-selling quality, i.e., providing services that genuinely meet customers’ needs and not just pushing products to increase the ratio. Furthermore, while the subprime market offers an opportunity for high returns, it’s also associated with high risk. Maintaining a robust risk assessment and management framework is essential.

As a lender focusing on subprime consumers, CSR can be a crucial tool to measure your business’s growth and performance, but it should never compromise the ethical considerations of lending.

Cross Sell Examples

Here is a list of potential cross-sell products and services a brick-and-mortar and online subprime lender might consider.

The key here is to consider the variety of your customers’ financial needs and how you could provide services to meet those needs.

  1. Installment Loans: These are larger loans that are repaid over a set period of time. They can be used for major purchases or to consolidate other debts.
  2. Payday Advance Loans: These are short-term loans designed to cover a borrower’s expenses until they receive their next paycheck.
  3. Line of Credit: This service provides a pool of money that customers can draw from. It provides flexibility as the borrower only pays interest on the amount used.
  4. Vehicle Title Loans: If your customer owns a vehicle, they may be interested in a loan where their car is collateral.
  5. Secured Credit Cards: For customers who have poor credit but are looking to rebuild it, offering a secured credit card can be an excellent service.
  6. Debt Consolidation Services: These are particularly useful for customers with multiple high-interest debts. It allows them to consolidate their debts into a single payment with a lower interest rate.
  7. Financial Counseling Services: Providing financial education and counseling services can help your customers better manage their finances, which could reduce default rates.
  8. Credit-Building Loans: These are small, short-term loans reported to the credit bureaus to help customers build or rebuild their credit histories.
  9. Insurance Products: Providing insurance for items such as automobiles, health, or life could be an additional revenue source. This will depend on regulatory restrictions and partnerships.
  10. Emergency Savings Account: This can provide a safety net for your customers and reduce the likelihood they will need high-interest loans in the future. Offering a competitive interest rate could make this attractive.
  11. Tax services can be an excellent cross-selling strategy for a subprime lender. 

Here’s why: Synergy with Core Business: Tax services align well with lending services, as both require a good understanding of a client’s financial situation.

Attract and Retain Clients: Many people find tax preparation confusing and time-consuming. Offering these services can attract new clients and encourage existing ones to use more of your services. 

Increase Revenue: Tax services provide an additional source of revenue. Customers seeking tax help might also be interested in your other financial products. 

Build Trust: By helping clients with their taxes, you establish a level of trust which could make them more willing to use your lending services in the future. 

Financial Health Check: Offering tax services provides an opportunity to review the client’s financial health. This could lead to the identification of suitable cross-sell opportunities. 

Seasonal Cash Flow: Tax season can generate significant business, aiding in cash flow during this period.

Considering the logistics and regulations involved in providing tax services is essential. This includes ensuring that you have trained staff who are up-to-date with the latest tax laws and software. Consider the cost of professional liability insurance and whether you must register with the IRS as a tax return preparer.

IMPORTANT: Some companies provide turnkey solutions for lenders who want to offer tax preparation services to their customers. Reach out to me for introductions. [

Overall, tax services can be a valuable addition to your service offering, benefiting your clients and business.

While selling these additional products and services can boost revenues and improve customer retention, ensuring that products align with the customer’s needs and financial situation is essential. Always be mindful of responsible lending practices and regulations.

So! Now you have a comprehensive understanding of the Cross-Sell Ratio KPI.

Feel free to reach out if you need further clarification or assistance.

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Subprime Lender Loan Charge-Off Rate (LCR) – Definition and What It Measures

Loan Charge-Off Rate (LCR) – Definition and What It Measures

The Loan Charge-Off Rate (LCR) is a Key Performance Indicator (KPI) that quantifies the rate at which a lender’s loans are deemed unlikely to be recovered and written off as a loss. It measures the risk and effectiveness of a lender’s credit decisions and recovery efforts. It is calculated by dividing the total value of loans charged off during a specific period by the total value of the loan portfolio at the beginning of that period.

LCR = (Total value of charged-off loans during the period) / (Total value of loan portfolio at the beginning of the period)

For example, if a lender has a loan portfolio worth $1,000,000 at the beginning of the quarter, and during that quarter, it charges off loans worth $25,000, the LCR for that quarter would be 2.5% ($25,000 / $1,000,000 * 100%).

Importance and Use of LCR for Subprime Lenders

For subprime lenders, the LCR is a critical KPI. Since subprime borrowers are generally considered riskier due to their credit history, the likelihood of loans being charged off is typically higher than with prime borrowers. As such, a subprime lender’s ability to manage and limit its LCR significantly indicates its operational effectiveness and risk management capabilities.

Managing and improving the LCR involves multiple facets, including but not limited to improving underwriting standards, enhancing collections efforts, and possibly restructuring loans. It’s important to note that while lenders want to keep the LCR as low as possible, a too-low rate might suggest overly strict lending standards, which could limit loan volume and overall profitability.

Challenges in Improving LCR

Subprime lenders face several challenges in improving their LCR. Regulatory hurdles, such as limitations on collection practices, can make it more difficult to recover funds from delinquent borrowers. Technological issues may also be a factor, notably if the lender lacks advanced analytics capabilities to predict which borrowers are most likely to default. Additionally, staffing can be a limitation if there are not enough trained personnel to manage collections effectively.

Investor Expectations

Investors in subprime lenders generally understand the higher risk associated with this market segment. However, they still expect lenders to manage their LCR effectively. A high LCR can indicate poor underwriting standards or ineffective collection practices, impacting profitability. Therefore, investors typically prefer lenders with lower LCRs, all other things being equal.

Unique Considerations for Subprime Lending

Given the nature of subprime lending, lenders should be aware of the additional risks this market presents. They should also be prepared to comply with additional regulatory requirements, such as stricter reporting requirements or limitations on collection practices. Borrower expectations may also differ, with subprime borrowers potentially requiring more flexibility in terms of payment schedules.

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I hope this explanation provides a comprehensive overview of the LCR and its implications for subprime lenders. Do you have any other questions, or is there anything else you would like me to expand on? Reach out:

3 ways I Help lenders

How to start a subprime consumer loan business

The Bible

Our 500-page “bible.” How to Loan Money to the Masses!

Consultant: Start a payday loan business


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