August 24, 2021

KNOW THESE BASIC DIFFERENCES BETWEEN A LOAN SERVICING AND LENDER

By : Ellie Brown

Are you confused about loan servicing and lender? Then you need to know that loan servicing is totally different from lenders. Actually, they have nothing to do with lenders. Rather, their role begins only after the approval of the loan.

On the other hand, lenders offer monetary assistance in exchange for high or low rates of interest. Some lenders would like to provide funds in exchange for nothing, while others may want to offer funds for any valuable belongings. Usually, money lenders have tie-up with such loan servicing companies so that repayment is monitored properly.

What is loan servicing?

A loan servicing company ensures the repayment amount collection and minimises the entire outstanding after collecting money every month. For instance, if a person has borrowed a house loan and that money lender ties up with a loan servicing company, that entity will take care of timely repayment. Generally, this type of servicing companies sends bill statement, invoice and collect repayment every month on behalf of the moneylender.

Usually, this type of loan servicing company serves the best to the money lenders. Actually, they help in clearing outstanding dues. On the other hand, a borrower gets an immediate response from these loan servicing companies on behalf of the lender.

What are the basic differences between loan servicing companies and money lenders?

Surely, there is no doubt that there is a huge difference between money lenders and loan servicing companies. Actually, money lenders used to hire this service for the sake of their help only. As after hiring a loan servicing company, the money lenders need not worry about timely repayment.

Here are some differences between money lenders and loan servicing companies.

i. Loan servicing companies need to maintain the relationship with borrowers. Besides, they require taking care of the financial activities of a borrower regarding repayment.

On the other hand, money lenders do not handle any relationship with any borrowers. They just check the eligibility and approve as per the requirement. Sometimes, lenders would like to check even the credit score by these loan servicing companies.

ii. Lenders hire such loan servicing companies to take care of after sanctioning the fund. So, in this case, a loan servicing company is not the highest authority to make decisions.

At the same time, money lenders are the supremo of taking decisions. They decide whether a person is eligible to become a borrower or not.

iii. Loan servicing companies only look after the quality of service after disbursement. They do not have anything to do with the defaulter. The only thing they can do, i.e. to inform the supremo for taking the legal step.

On the other hand, this type of lender does not spare any defaulters. After getting information from loan servicing companies, it takes proper legal measures to take against that defaulter.

iv. The loan servicing company mainly collects the monthly repayment from borrowers. After collecting, they give it to the lending company.

On the other hand, in exchange for salary, a money lending company hired such entities for the timely collection of money.

Different types of loan servicing companies

Perhaps you think that how can you identify loan servicing companies? Actually, for different types of money lenders, there are various loan servicing companies. Apart from that, financial intermediaries also work as loan servicing companies.

Here are some examples of different loan servicing companies.

1. Bank

Usually, there is no other loan servicing companies like the bank itself. Apart from sanctioning loans, it also serves a borrower at his need. Being a large financial intermediary, it serves as a lender and loan servicing.

A large team handles the circulation of loans, background verification, disbursement, and necessary services after sanctioning the loan. So, this is the primary reason why most people would like to apply for a loan from the bank. Besides, it also serves instant text loans with no broker facility.

2. Non-banking organizations

Apart from banks, many NBFCs also offer both of them, i.e. lending service and lending money to borrowers. In this way, it earns extra profit by lending directly. Small NBFCs would like to work as a third party for large money lenders.

3. TPV

TPV stands for third-party vendors who offer loan servicing to various large financial entities such as banks, NBFCs, Direct Lenders etc. Apart from that, this type of company also provides very small short-term loans to borrowers to expand their business. But their primary job role is to provide loan servicing to borrowers.

So, there is a basic difference between Lending companies and Loan Servicing companies. If your lender offers loan servicing, then do not ignore the offer because it will ultimately benefit you. Being a borrower, you can stay completely worriless regarding repayment.

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