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A lending institution is any type of financial organization or institution that provides loans to borrowers. There are many different types of lenders in the marketplace today, ranging from banks and credit unions to mortgage and payday loan companies. The range of loan types offered by any one financial institution will vary, depending on the structure of the organization. Typically, all lenders will charge some rate of interest for the amount of funds borrowed, and require the borrower to commit to a contract that spells out the terms for repayment.
One of the more common examples of a lending institution is a bank. The ability to provide loans is only one of several services offered by banks, but consumers often think of approaching the bank where they already have existing accounts such as checking and savings when they are in need of financing for the purchase of a home, a car, or even a personal loan of some type. A bank is a depository institution, a trait that is not universally shared by all types of lending institutions.
Other organizations such as a building society, credit union, and savings and loan association can also be considered examples of a lending institution. All offer various services to clients that include but are not limited to providing loans for different purposes. As with banks, these organizations may cover a wide range of financial loans, ranging from secured and unsecured loan plans that are designed for both individual and commercial use.
Lenders that specialize in certain types of loans are also among the different lending institution types available to consumers. A mortgage company will usually focus on granting mortgages or home equity loans that allow borrowers to either purchase a home, refinance an existing mortgage, or obtain funds to make improvements to their properties. Finance companies may make short-term loans that are repaid over several months or even a few years, providing services such as debt consolidation loans. One of the newer types of institutions in this category are payday loan providers, who extend short-term loans of anywhere from a couple of weeks to a month, usually with a higher rate of interest than other types of lenders.
Choosing the right lending institution is important when seeking a loan. Taking the time to compare interest rates, how the interest is compounded, and even the other terms and conditions associated with the loan agreement is very important. In addition, investigating the background of each lending institution is crucial, since working with a lender who has less than a sterling reputation could mean trouble later on. By carefully considering all options, consumers can find the right loan with the right lender and enjoy the benefits without experiencing unnecessary difficulties.