Lender

Lender summary:

• Lenders are the people, companies, or organizations who loan you money.

• Banks, credit unions, and mortgage brokers are all lenders.

• Lenders interact with you when you apply for and repay loans.

Lender Definition and Meaning

A lender is an individual, group, or institution that loans you money. You typically repay the loan’s principal (the money you received) plus interest to a lender.

Types of Lenders

Banks, credit unions, and mortgage brokers are common lender types. 

Banks offer a variety of loan types. You can take out bank loans for a house, for a car, or for unspecified personal reasons. Banks check your credit score and other factors to determine how much to loan you, and on what terms. 

Credit unions offer loans to their members. Rates may be lower than those offered by banks because credit unions, as a rule, return corporate profits to their members.

Online lenders offer quick and flexible loans. You can take out loans entirely online. Banks and credit unions sometimes let you take out loans online. Some online lenders are neither banks nor credit unions, but rather, private companies that just make online loans.

Other lenders include peer-to-peer lenders, government lenders, and mortgage brokers.

Lender: a Comprehensive Breakdown

A lender is one part of the puzzle of taking out a loan. You communicate with your lender to borrow money, either directly or indirectly, through loan facilitators. 

Lenders communicate in person, over the phone, or online, depending on type. Some online lenders approve loans 100% through websites.

Here’s the usual process of interacting with a lender:

1. Research lenders that offer the loans you need.

2. Fill out an application and submit it to the lender.

3. Wait for approval.

4. If you’re approved, the lender sends you money (or delivers it on your behalf to someone else).

5. You repay the loan according to the terms you agreed to.

Mortgage lenders often require more steps. Taking out a mortgage is more complex because it’s a much bigger dollar amount than most other loans you’ll take out during your lifetime. 

Lenders check your credit score during the approval process. A higher credit score, usually a FICO Score, boosts your approval chances. A higher score also tends to get you better deals on loans. That’s because statistically, people with higher scores are less likely to default on a loan, so you represent a lower risk.

Read more: How Do Loans Work