Lenders Offer the Full Array of Standard and Customized Solutions
A lender is an individual, business, or financial institution that offers loans to government entities, corporations, small businesses, associations, non-governmental organizations, and individual borrowers. There are also payday lenders, pawn shops, and online banks, as well as credit card companies. They accept deposits, offer loans, and charge interest to make profits.
Mortgages
There are three types of entities that offer mortgage loans – wholesale lenders, mortgage brokers, and bankers. Brokers are professionals who act as intermediaries between financial institutions and borrowers. They gather the required documentation and pass it along to banks for processing. The main advantage is reliability. Mortgage banks are regulated by government agencies and are considered trustworthy. Quick approval is another benefit for customers. On the downside, they offer a more limited selection of products. Wholesale lenders often rely on brokers and offer loans to customers. Their job is to do risk analysis. These entities also sell loans to other parties to earn profits and commissions. Banks also offer mortgages, including fixed and variable rate, reverse, interest-only, balloon, and others. The difference between them and brick-and-mortar banks is that the former offer mortgages only while the latter extend auto, student, and consumer loans, lines of credit, and so on.
Credit Cards
Credit card companies offer rewards, airmiles, low interest, cashback, no annual fees, student, and other types of cards. This is a form of revolving credit whereby the borrower draws on a line up to the available limit. Issuers also charge interest to make profits and it varies considerably.
Other Products
There are different types of lenders that offer a wide array of products, from mortgage and home loans to credit cards and business loans. These include credit unions, retail and commercial banks, caisses populaires, and others. The main difference between banks and credit unions is that the former are owned by investors while the latter – by their members.
Secondary Market Investors
These are entities that don’t deal with customers but control the loan products available and the interest rates. Fannie Mae is one example of an entity that buys mortgages.
Real Estate Agencies and Home Builders
Many agencies and builders offer loans to buyers with the aim of selling their properties. Some of them own a mortgage company that functions as a broker or banker.
Online Banks
Online banks have become popular with borrowers because they offer attractive interest rates. It is easy to apply and may take just 10 minutes. Some are branches of mortgage brokers and banks while others work as Internet-based banks. They are able to offer better terms and conditions because they save on office space, supplies, employees, and other expenses.
Predatory Lenders
There are also companies that prey on borrowers and offer extremely high interest rates. Some loan providers use fraudulent and unfair practices to attract customers. There are signs and red flags to watch for. These include hefty prepayment penalties, high fees, targeting and steering, and repeated refinancing. Predatory lenders often hide the fact that there are costs such as insurance premiums and property taxes. They advertise low monthly payments by not counting closing costs such as title service, recording, attorney, appraisal, and mortgage application fees. Predatory lenders also target persons belonging to ethnic minorities and senior citizens and offer very high interest rates. They usually advertise no credit checks, fast approval, and attractive terms and conditions. Many financial institutions charge prepayment penalties when borrowers decide to repay the loan earlier than the specified term. The problem with predatory lenders is that they charge steep prepayment fees. In addition to predatory practices, there are payday loan providers and pawn shops. The former offer short-term loans that are backed by the borrower’s next paycheck. While some companies feature very high interest rates, there are steps in the right direction. For example, limits have been set in place to control the number of times a loan can be extended or rolled over. Some companies also run credit checks.
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