When you take out any type of loan, such as a mortgage or car loan, you will have to work with a loan administrator during the life of the loan. Become a savvy loan consumer by gaining an understanding of what a loan administrator is and what functions one serves.
Loan Administrator Definition
A loan administrator is the company that services a loan after the loan agreement has been executed. A loan administrator may also facilitate a loan before it closes. Thus, the loan administrator is often also called the loan servicer. This may be a department within the same company through which you took out the loan or a different company contracted by the lender to perform all servicing functions. Typically, if the lender outsources loan administration, once the loan closes, borrowers receive a letter that explains which company will administer their loan.
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Key Functions of Loan Administrator
As the title implies, a loan administrator or servicer administers or services a loan. Once a loan closes, you will deal exclusively with the loan administrator rather than the lender, if they are not one and the same. The loan administrator is the company that will send you monthly bills and to which you will submit your payments. The loan administrator also will maintain your payment records and monitor your compliance with the loan agreement.
Reasons for Loan Administrators
Lenders are busy evaluating potential borrowers' creditworthiness and making loans. Thus, the same people who issue loans often do not also service those loans. Rather than creating a separate department to service its loans, lenders outsource this function to companies that specialize in loan administration.
Importance of Loan Administration
Each month, you receive a bill for your loan and send payment to the administrator just like you would to the lender. The difference between the two entities only becomes apparent and important if you happen to fall behind on loan payments. In this situation, the loan administrator acts as go-between, helping you and the lender reach some agreement to bring the loan back into compliance.
It may provide mediation and conflict resolution services, representing both the best interest of the lender and the consumer. It's in the administrator's best interest to help the lender and borrower reach an agreement because if the loan is charged off, the administrator has no loan to service and thus loses business.