The lender is a company, a bank, a financial institution or a person who lends money. The person who takes the loan is a borrower.
What is a lender?
A lender is a bank, a person, usually a company that lends money to an individual or a company that wishes to borrow. In the past, it was only a bank that was allowed to act as a lender – but in recent years, a plethora of institutions have been added that offer different types of loans. There are today e.g. possibility to borrow without security via an SMS loan, mobile loan, microloan and quick loan.
All lenders offer different loans with different terms. Some companies require that you as a borrower have some form of security to get your loan approved – while other companies lend money without any security.
These loans are high fees and are not recommended if you do not have a clear plan and control of your monthly budget so you can finance the high interest rates that you can expect with these types of loans.
For larger loans such as a mortgage and car loan, the loan is granted against some form of security or pledge – so the lender can guarantee the security that the loan will be repaid within a reasonable time.
Why do you need to borrow money?
There are many different reasons why a business needs to borrow money. A start-up company may need cash to start operations, and an established company may need a loan during a growth period or to cope with a difficult period.
There are various ways to increase liquidity, for example through overdraft facilities, factoring, new issues, reduced inventories, divestments of assets and corporate loans.
Things to keep in mind when being a lender
There are many different lenders that offer loans and credits. Being a lender always involves some risk. The loan is granted against the borrower agreeing to repay the loan within an agreed period at a pre-determined interest rate. The interest rate on the loan is the price and the interest rate is usually written as a percentage.
There are also lenders who lend money without security, such as mobile loans, SMS loans and microloans.
Such types of loans are seldom beneficial to the borrower, and it is therefore important to read and understand the terms of the loan to know exactly how much the loan will cost.
The lender’s assessment of the borrower
A serious lender makes an assessment of the borrower before the loan is granted.
Lenders analyze you as an entrepreneur and your business plan, but also the company’s repayment ability, creditworthiness, any debts and payment remarks with the bailiff, the financial development and how long the company has been active.
Banks and finance companies may also require collateral for the loan. The security can be the company’s assets or a form of surety.
Choice of lender
As a borrower, you should be careful when choosing a lender. Not all players are serious and you do not want to be tricked into taking out a loan that then costs you more than the actual loan amount.
A lender must clearly market their various loans and credits as well as their terms. As a borrower, you should know exactly how much a loan will cost you.
It is good to know from the beginning how much you need to borrow and what you should have the money for. The lender may not care much about the purpose of it as it simplifies for you as a borrower to find a loan that suits you.
Another aspect that can be important is how quickly the lender can grant a loan.
As a borrower, you may be in a hurry to get a loan granted and thus you may have to deduct traditional bank loans and apply to lenders that offer web loans and quick loans.
Which lenders should I look out for?
It is impossible to ignore the fact that a larger bank provides security. When you borrow money online, you should always be careful, as there are plenty of rogue players. A rule of thumb is that the loan should not be granted too easily.
If you barely need to provide any information about your finances or life situation, it may be a good idea to be careful. There are several reputable sites that list both reputable lenders and reputable companies.
I don’t know what it’s like in your country but where I live the companies should preferably be approved by the Swedish Financial Supervisory Authority and clearly market the terms of their loans.
Always choose an authorized lender and remember to review the fine print in the form of interest rates and fees.
At the same time, a loan is a loan. You as a borrower obviously have a responsibility to repay the money according to the terms of the agreement, regardless of where the money comes from.
Which lenders are best?
It all depends on the type of loan you want to take and what you can imagine paying in interest.
Mortgages – which require significantly more from you as a borrower than, for example, a private loan – are still the area of the major banks, as other lenders do not have the opportunity to offer loan amounts of that size.
Although there are a couple of challengers in the market, these lenders also charge a much higher interest rate for their mortgages than the largest banks.
2. Microloans or Unsecured Personal Loans
The vast majority of lenders focus on microloans or unsecured personal loans. Microloans are always a small amount of money that is paid out as soon as your loan is granted.
The idea with these is that they should also be repaid relatively quickly and they therefore usually have a very high interest rate.
Private loans without security can be a little bigger – the maximum amount is around $60,000. How much you can borrow from these lenders is always individual.
3. Peer-to-Peer Loans
A third model that has become more common in recent years is peer-to-peer loans. This means that both the lender and the borrower are private individuals.
For borrowers who, for example, have payment remarks, this is an advantageous alternative, as many other lenders are guaranteed to close the door.
There is always an intermediary or platform for these loans.
The company makes a credit assessment of the borrower and based on that, the interest rate on the lenders’ investment is determined.
Can I have loans from several lenders at the same time?
Absolutely. For example, many people have their mortgages with a major bank and the credit cards linked to other lenders.
It is also possible to transfer loans between different lenders. However, it can be costly to have too many different credits, as each individual loan costs in the form of interest.
Scattered loans combined with strained finances are the most common reason why people fall into the infamous luxury trap.