A loan servicer is responsible for the administrative aspects of helping you to borrow and pay back a loan. The responsibilities of a loan servicer may include issuing monthly billing statements, collecting and processing loan payments, maintaining records, and being available to answer questions or assist with requests you have regarding your loan.
Curious to learn more about what loan servicers do and what it means for borrowers? Read on for a few answers to FAQs about loan servicing.
Who services loans?
A loan servicer may be the same as your lender: meaning a credit union or bank, or possibly an online personal loan provider. Then again, a loan servicer could be a separate, third-party company that specializes in loan servicing. Whoever is responsible for servicing your loan, they will be required to adhere to industry regulations around loan servicing. This ensures that borrowers receive fair terms, timely disclosures, and careful record-keeping.
What loans require servicing?
All loans have servicing needs, however the question of loan servicing usually comes into play for borrowers taking out a mortgage. This is because a home loan requires administration over a number of years or possibly even decades. Student loans, too, represent a good portion of the loan servicing industry. On the other hand, servicing needs for a personal loan will often be performed by the lender, as the terms and lengths of this loan type tend to be shorter and simpler, reducing the overall administration.
Is a loan servicer the same as a lender?
A lender and a loan servicer perform different functions. The job of a lender comprises checking your credit and other personal information to approve a loan, managing the financial aspects of funding your loan, and ensuring that the loan money is made available in your account. A loan servicer looks after the day-to-day management of your loan, which might include keeping track of how much you owe, processing monthly payments, and answering questions from the borrower.
Can a lender also be a loan servicer?
Yes, although nowadays, many larger banks and mortgage lenders prefer to hire an external company to take care of loan servicing, due to increased regulation and scrutiny over the servicing industry following the 2008 financial crisis. Smaller financial institutions, like regional banks and credit unions, are more likely to service their own loans, as due to their size they can more easily manage the regulatory process. This is the case with HUECU: as the Credit Union always services its mortgages. There can be advantages to working with a joint lender-servicer, such as having one point of contact for your loan and receiving more personalized support.
How much does loan servicing cost?
Loan servicing fees usually come out to around 0.25% or up to 0.50% of your monthly loan payment. As the borrower, you are not directly responsible for paying these fees. Instead, typically, the cost of servicing is wrapped up in the total cost of your loan as determined by the lender – so you make set monthly payments as per the terms of your loan, and a portion goes toward loan servicing. However, there are some cases where a servicer may directly charge additional fees to the borrower, such as in the case of late payments.
Have more questions about loans, loan servicing or mortgages? Get in touch with an HUECU loan expert who can walk you through what you need to know about taking out a loan.