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A loan servicer is a business entity that handles loans either on its own behalf or for that of another business. People with outstanding loans submit their payments to this company and it handles collection of interest, fees, insurance payments, and other costs associated with the loan. Loan servicing is a very large industry worldwide and includes a mixture of public and private companies with different areas of specialty.
When a company originates a loan, it has the option of keeping the loan or selling it to another party. In both cases, the owner of the loan may decide to service it in-house if it has the personnel to do so, or to contract out loan servicing to another company. The loan servicer specializes in managing loans. The staff all have extensive training in how to handle debtors and loans, and the company offers full services, including answering questions from borrowers, foreclosing on assets if debtors don't keep up with payments, and terminating liens at the end of a loan.
Borrowers send in payments to the loan servicer and may be able to use online and phone payment systems in addition to the mail. The servicer calculates and collects interest. It can also handle other loan expenses, depending on the structure of the loan, such as collecting property taxes for escrow accounts or collecting private mortgage insurance payments from the borrower. It charges a fee for these services, and typically companies receive a discount when they open contracts on large packages of loans.
When problems with the loan arise, the loan servicer handles them. This includes late payments, requests for refinancing or forbearance, and so forth. The company works to resolve the issue if possible, and to take collection actions if this is not an option. It may have internal collection services or could choose to subcontract this to another party.
Borrowers and loan servicers both have rights and responsibilities under the law, although the precise laws can vary depending on the location. Usually loan servicers need to notify borrowers of changes like sales of loans and adjustments to the terms. They also need to provide contact information and statements upon request so borrowers can determine if their accounts are in good standing. There is also an obligation to maintain privacy by protecting confidential information about borrowers, such as social security numbers. Borrowers in turn need to keep current with payments, provide updated contact information, and contact the loan servicer if they anticipate problems with repayment.
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