What is loan assignment?
A loan assignment is the sale of a loan by the original lender to a financial service provider. For the customer, this process initially only has the effect that he has to pay to another creditor than his original contractual partner. It is not uncommon for the credit institution selling the loan to continue to provide the service for the buyer, so that the customer pays formally to another creditor, but continues to pay into the account of the bank chosen by him. A transfer of credit only proves to be uncomfortable for the debtor if he is unable to process the loan properly. In this case, the financial service provider will terminate the loan because it is not interested in a long-term business relationship with the customer, but rather is interested in the realization of the financed item.
For this reason, the buyer of a loan very rarely accepts the borrower’s wish to defer the agreed loan installments or to change the modalities of the repayment. In most cases, banks sell loans that are considered to be non-performing, and the process is also carried out more frequently than average as part of real estate financing. Real estate loans are deemed to be non-performing if installments are not paid or are paid late on a regular basis. Of course, all contractual agreements continue to apply even after a transfer of credit, so that termination is only permitted in the cases specified by law.
However, a large number of customers cannot service their sold real estate loan as agreed, so that it is terminated. After cancellation, the entire loan amount becomes due immediately, while the borrower is unable to fully repay the loan in full. This situation ultimately means that the financial service provider can sell the property and initiate a foreclosure. A business bank uses the instrument of foreclosure much more slowly, since this measure destroys the basis for further cooperation with the customer concerned and can lead to a bad image.
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If the bank has not sold a loan, in many cases it tries to work with the customer to find a compromise solution that is acceptable to both sides. Financial investors, on the other hand, have no interest in a further customer relationship. An assignment of credit can be excluded in the loan agreement. For the relevant agreement, most banks charge a small interest premium, while some Volks- and banks and savings banks firmly promise not to sell loans to financial investors. When deciding on a specific lender, the extent to which the loan should be sold should be taken into account where possible.