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.