What Is Loan Servicing?

Loan servicing is the process a business, known as a loan servicer, goes through to collect payments, interest, and collateral (if necessary) from borrowers. Your loan servicer may be the same as your lender or another company. Regardless, it will work with you until the loan is paid in full or transferred to a new service provider.

Learn what loan servicing is, how the process works, and how it differs from working with a lender.

Definition and examples of loan services

Loan servicing is the process of ensuring that loan payments are collected from borrowers. For example, if you have a personal loan, your loan servicing company is the one that sends you monthly statements, processes your payments, responds to your requests, and maintains your loan records.

Some recognized loan officers include student loan officers Nelnet, Great Lakes, and Navient.

How does the loan service work?

Your loan servicer is responsible for managing your loan on a daily basis and collecting monthly payments.

Your service provider must also meet additional federal and legal requirements. For example, if you have a mortgage, your loan officer must:

  • Apply the loan payment the same day it is received
  • Report the amount of your current payment
  • Communicate with you about late payments
  • Provides detailed information about your payment history

A mortgage broker will also manage your escrow account and use it to make tax and insurance payments as they are due each year.

Types of loan services

There are student loan officers, personal loan officers, and even mortgage brokers. However, each of them can be a type of loan officer, such as a bank, an online lender, or even a third-party company.

Banks

Until the financial crisis of 2008, banks used to originate and manage loans, and some still offer loan services today. But due to the exponential growth of the credit industry, banks often hire other companies to handle services for them.

Non-bank creditors

If you used a non-bank lender to obtain a loan, such as an online personal loan lender, that business may choose to pay the loan in-house.

Outsourced providers

Due to the work involved in servicing loans, banks and financial institutions often use third-party providers to service loans. These companies are responsible for maintaining the loan and making sure it complies with state and federal regulations.

Do i need a loan officer?

If you have a mortgage, personal loan, or student loan, you will need a loan officer. Your service provider is responsible for keeping you up to date on payment terms, answering your questions, and communicating important information about the loan.

What loan officers mean to borrowers

When a borrower obtains a loan, the lender decides who will pay the loan. It is important to know who your loan officer is because you will have frequent contact with that company.

To find out who your loan servicer is, contact the lender from whom you obtained the loan. You can also indicate who the loan officer is on your annual or monthly statement.

In addition to making your loan payments, you can contact your manager if you are having trouble making your monthly payments or have questions about your loan.

Occasionally, borrowers have trouble with their loan servicer and want to switch to another. This is really only an option if you are refinancing or consolidating your debt; otherwise, you cannot change loan servicers.

If you are having trouble getting the servicer withholding important information about your loan, you can file a complaint with the Consumer Financial Protection Bureau (CFPB) or the Department of Education's Office of Federal Student Aid (for student loans). If you think your manager is committing fraud, you can also file a report with the Federal Trade Commission (FTC).

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