A lender is an individual, group, or institution that lends money to borrowers. This can be done for various reasons. These agreements normally come with a repayment schedule, which includes the principal plus interest.
Most lenders are mostly financial institutions who are established to provide this service. This includes banks and credit unions.
Lenders extend credit with the expectation of repayment. Those who do not make the payments are said to be in default. Regulated institutions are limited to the number defaults they can incur on their loans.
When issuing credit, companies will use things such as a credit report and credit score to determine the worthiness of the borrower.
Types of Lenders
Traditional
These are institutions that lend to small and medium sized businesses. Banks and credit unions are the usual entities making the loans. Borrowers have to meet the requirements. If these can be met, this form of financing offers the best terms.
Traditional lenders face the more regulatory scrutiny.
Alternative
Alternative lenders face less regulation than the traditional counterparts. Some examples are online lenders, peer to peer lenders, and crowdfunding. This can be short-term funding and might not require collateral.
There are ways of securing larger amounts. This could entail more documentation than traditional lenders require. The interest rate is going to depend upon whether the loan is secured or unsecured.
Types of Loans
Personal loans
Funds for a wide array of personal needs and desires
- Credit builder loan: a secured loan that helps you to build positive credit history
- Debt consolidation loan: a way to combine multiple debt accounts, ideally with a lower interest rate
- Holiday loan: a loan to cover expenses related to holiday shopping
- Home improvement loan: used to pay for home improvement projects and repairs
- Medical loan: a loan to cover medical expenses or living cost while recuperating
- Vacation loan Allows you to cover the cost for a vacation
- Wedding loan: money to pay for the wedding
- Recreation vehicle and boat loans: financing on non-auto vehicles
- Pool loan: a loan to build or repair a pool
- Family loan: borrowing directly from a friend or family member
Auto loans
Funds used to buy a automobile
Student loans
Federal, state or privately-issued debt to cover education costs
Mortgage loans
Borrowing funds to buy a home
- Home equity loans: money borrowed against the equity in one's property
Payday loans
Payday loan involves borrowing against one's paycheck instead of using credit cards.
Pawn shop loans
A loan agreeing to a shop owner’s terms to pay for various items
Small business
Getting funds to finance an idea or to expand one's business. This can often come from the small business administration.
Private Lenders
Private institutions, angel investors, and venture capitalists lend money based on their own criteria. These lenders will also look at the purpose of the business, the character of the business owner, the location of business operations, and the projected annual sales and growth for the business.
Bonds
The bond market is the largest in the world.
Bond holders are not considered lenders in the traditional sense yet the process is similar to any other institution. When one buys a bond from a corporation, municipality, and governments, money is being lent to the institution.
This is a path that larger corporations can access.