- Financial Term Glossary
- Lender
Lender
Lender summary:
A lender is any person, group of people, company, or institution that provides money to a borrower.
Lenders and borrowers have agreements that specify the loan's interest rate, loan term, payment, and other requirements.
The borrower is obligated to honor the loan agreement and repay the money to the lender as agreed.
Lender definition and meaning
A lender provides money to a borrower, expecting it to be paid back according to an agreement.
Key concept:
An individual, group of investors, institution, or company that provides money to a borrower and expects to be repaid under the terms of an agreement.
More about lenders
There are many types of lenders that make loans for various purposes, including:
Mortgages for real estate transactions
Commercial loans for business financing
Auto loans to cover car and truck purchases
Student loans to pay for education
Lines of credit for individuals and businesses
Personal loans to individuals for miscellaneous reasons
Lenders include banks, insurance companies, groups of investors, individuals, credit card issuers, finance companies, and sellers of products when they offer their own financing. Any time you receive money—for any purpose and under any terms—that you're expected to pay back, you become a borrower dealing with a lender.
Lender: a comprehensive breakdown
Without lenders, most people's lives would be much harder. Very few could become homeowners without mortgages if they had to save the entire price before they could buy a house.
Even cars would be out of reach to many if they had to pay cash for them. And while it's ideal to have an emergency fund when unexpected costs arise, lenders can help if you get into a scrape before you've saved enough.
Main types of lenders
There are many places to get a loan. Here's a list of the most common ones.
Banks. These are the most traditional sources of loans, large and small. Banks are also depository institutions, meaning you can keep your money there in savings, checking, and other accounts. Banks offer benefits, and sometimes interest, so they can have access to your money, which they then lend out at higher rates.
Credit unions. Credit unions are similar to banks. They give benefits or pay interest to depositors for the use of their money. They lend that money to borrowers at a higher interest rate. Credit unions are owned by their members, who are also their customers. Credit unions sometimes offer payday alternative loans, or PALs, which are affordable short-term loans meant to be repaid on your next payday.
Fintechs. Financial technology companies operate mainly online. They use algorithms, technology, and automated data analysis to make lending decisions.
Private investors. Sometimes, individuals and groups of people put up their own money for business loans, real estate loans, and other financing. Because they're small and lend their own money, they may sometimes be exempt from licensing and other requirements.
Credit card issuers. These could be banks, fintech, or other finance companies. Often, retail stores, airlines, and other brands have arrangements with credit card companies to offer co-branded products.
Payday, title, and paycheck advance lenders. These lenders offer extremely short-term loans at very high interest rates. More than half of states ban these loans outright or heavily regulate their terms.
Lender FAQs
How do lenders determine interest rates for loans?
A borrower's credit score is the primary factor lenders consider when they decide what interest rate they will offer you. Generally speaking, people with higher credit scores can qualify for lower interest rates. Other factors that could affect your rate include:
The term. Shorter loan terms sometimes qualify for lower rates.
The amount. Smaller loans sometimes mean lower rates.
Economic conditions. When market rates change, lenders change the rates they charge customers.
How can I avoid predatory lenders when I have no credit?
The best way to avoid predatory lenders when you need a loan but have no credit is to take your time and research the available options. Find out the APR of any loan you’re considering. A normal APR is between 0% and 36%. Payday loans and title loans, on the other hand, can have an APR over 350%.
You might start with a credit union first to see what kind of no-credit loans are available, then expand your search for online lenders. If any loan you're being offered seems too good to be true, it probably is.
What’s the easiest loan to get approved for?
Payday alternative loans (PALs) offered by some credit unions are generally the easiest type of personal loan to get. You won’t need to undergo a credit check, although you'll need to have been a credit union member for at least a month. If you’re applying for a traditional personal loan, it’ll generally be easier to get approved for a smaller personal loan with an online lender.
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