When getting a loan or any related financing program, you must be particular about which options are best for you, the lender being one of them. It is, after all, the entity that provides you with the money, and it determines the terms you must follow for a pleasant transaction. You just have to determine which suits your needs and which terms you are comfortable with.
If you are undecided about which lender to go to, here are the different types of lenders, the loans they can lend you, their terms, and their pros and cons.
1. Banks
Banks are well-known lenders everybody knows. Not only can they store your money, but you can also invest with them, and of course, they offer loans that you can borrow. The loans offered in banks are typically the most money a lender can offer.
Different banks have specific loans and terms, but typically have almost the same terms, offers, and standards. Banks are the lender that have you borrow a considerable sum of money for the long term.
Their requirements are often by the book: proof of identity, income, expenses, and more. You must also be of legal age and have a fair to excellent credit score. If you transact with the bank you have an account with, the application process may be more straightforward.
Perhaps the most common loans they offer are personal loans. These loans tend to be flexible and can cater to more borrowers. They can lend vast sums from tens of thousands to millions, though the amount will depend on their evaluation of the borrower, called underwriting finance. Banks can offer mortgages, auto loans, business loans, and credit cards.
Pros:
The paramount convenience you have with banks as your lender is security. They are a reputable institution, so there are no worries about scams. So if you want to borrow huge sums of money for the long term (as your credit score allows), they are generally safe to transact with as you already know them. And if you have favorable credit, you’ll be charged reasonable interest rates.
Your transactions will be reported accurately and on time. If you get a loan from your bank, it will be a convenient process as they already have your records.
Cons:
Their main disadvantage is that they can be too strict. For instance, if you have a low credit score, there may not be many options for you, or you may not be accepted for their loans. You could at least be offered a secured loan, but it can be risky as you can lose an asset if you can’t pay it off.
2. Lending Companies
Lending companies are institutions that specialize in loans. They have a variety of loans you can choose from and can accommodate how much you need. Some lending companies are walk-in, and some you can access online through a browser site or a mobile application.
Different types of loans can also be offered by lending companies. In contrast to bank lenders, lending companies can offer loans for a shorter time and can lend smaller amounts of money from the hundreds to thousands of dollars.
The process can also be fast and requires fewer requirements and qualifications than banks. Some have loans for bad credit, and some do not even check the credit score, although they still evaluate the borrower.
Pros:
Lending companies are very accommodating towards people with low credit. They can offer you unsecured loans of smaller amounts of money quickly. It helps avoid unnecessary long-term financial commitments. Getting a loan can also be fast; it can take a week or less to get approval and days to minutes to get your money.
Cons:
If you are to get a short-term loan, rates can be high. The rates can depend on many factors, but short-term loans tend to be higher as there is a higher risk of a loan default considering the shorter window of time to repay it.
Another is the risk of scams. This isn’t to say that lending companies are scams, but some scammers disguise themselves as lending companies with rates and offers too good to be true. It would help to check the legitimacy of a company before transacting with them.
3. Credit Unions
Credit unions are financial institutions that offer similar financial services to banks. It is a nonprofit cooperative that people can join as members. They then pool their money and buy shares, and their contributions can be used for various financial services, including loans.
The types of loans may vary among credit unions, but they can offer the more common types like personal loans and mortgages. The amount they can lend can depend on how much funding they have, but the services typically benefit the members.
Pros:
Credit unions are generous with their members. When you borrow from them as a member, you can enjoy lower rates than you would expect from a bank.
Cons:
You’ll have to be a member to enjoy the benefits of a credit union’s services, and if you want to be a member of one, it can take a while, which can be inconvenient if you need a loan soon. Moreover, options can be limited and more inflexible than other lenders.
To Sum it Up
If you need a loan or to borrow money in general, there are many other ways. But before you take out a loan, research and prepare to ensure you can get a deal with a reasonable sum to borrow and favorable terms.
Also read: Why are Installment Loans Beneficial?
