What Is Lending and Types of Lenders?
Posted On 14/07/2019
In essence, a loan is a particular form of economic relations in which one party provides the other with finances, commodity or some other value for a specified period.
The main document regulating the relationship between the borrower and the lender is a loan agreement. It contains all the conditions for granting a loan, and it is mandatory to indicate for how long and at what percentage the funds are issued.
As mentioned earlier, a loan is a provision of certain monetary values for a certain time and on a fee basis. Banking and other financial institutions issue two types of loans: earmarked and non-earmarked. The first one is issued for specific purposes. This may be the purchase of real estate, household appliances, business development, and much more.
In this case, there is a clear purpose of using money. The property purchased with these funds acts as collateral for the loan. In the case of non-payment, it is sold according to a court decision, and funds received during the sale are used to repay the loan.
Non-earmarked loans are issued for various needs, and there is no control over the use of funds. That is, the borrower can spend money as he or she wants. The main thing is to make mandatory payments on time and not to violate the terms of the contract.
Types of lending have significant differences, so it is worth considering the most common ones:
- Commercial loan. The buyer does not pay for the goods immediately but redeems its price in parts at regular intervals. This type of loan can be both with interest and interest-free. In the first case, a specific rate is added to the total value of the products.
- Bank credit. This is the arrangement of money for a predetermined time frame at a certain interest rate. Credits of this sort can be targeted or non-targeted.
- Usurious credit. This kind of credit is determined by very high-interest amounts accrued daily for the entire cost of funds disbursed. Loans offered by microfinance institutions are similar.
- Consumer loans. It is one of the most popular at the moment. Consumer loans are most often issued without collateral for up to several years. The most common option is to issue a bank card with a revolving credit line. When returning a part of the loan body to the account, this amount becomes available for use. The rate is calculated monthly.
Knowing what is a lender, as well as various types of loans, offered by banking and other financial institutions to the public, make it easy to choose the most profitable option that meets all the requirements. Now, you can get both a target and a non-target loan fairly quickly in a bank. It is sufficient to simply provide the necessary documents to make use of the loans’ benefits.