What is the purpose of loan servicing?

The purpose of loan servicing is primarily to manage the loan account, collect payments, and communicate with borrowers throughout the life of the loan. This encompasses a variety of tasks that are crucial for ensuring that both the lender and the borrower maintain their responsibilities regarding the loan. Loan servicing involves managing payment schedules, maintaining accurate records of payment history, addressing borrower inquiries, and providing notices regarding the loan, such as payment due dates or changes in terms.

By ensuring effective communication and management of payment processes, the loan servicer plays a critical role in maintaining the loan's viability and the borrower’s understanding of their obligations. Additionally, the servicing process helps prevent defaults by providing borrowers with necessary reminders and assistance, thereby supporting a healthier lending environment.