Basics of the Lending Industry

What is Lending?

Lending is when one party, usually a bank or other financial institution, gives money to another party, known as the borrower. The borrower promises to pay back the money, usually with interest, over a set period of time.

Why is Lending Important?

Lending is important because it allows people and businesses to do things they might not otherwise be able to afford, like buying a house, starting a business, or going to college. It's a way of spreading out the cost of a large expense over time.

Types of Loans

There are many types of loans, including:

• Personal Loans: These can be used for any personal expenses, like buying a car or paying for a vacation.
• Mortgages: These are loans used to buy real estate, like a house or a condo.
• Student Loans: These are used to pay for education-related expenses, like tuition and books.
• Business Loans: These are used to start or expand a business.

Different types of loans and the way they are reported to the credit bureaus effects your credit score in ways you might not expect.

Interest

When you borrow money, you usually have to pay interest. This is a percentage of the loan amount that you pay to the lender in addition to paying back the original loan amount. This is profit for the lender. This is why someone would bother loaning money to a stranger. The interest rate can vary depending on many factors, including the type of loan, your credit scores, debt to income ratios and the current market rates.

Credit Score

Your credit score is a number that lenders use to determine how likely you are to pay back a loan. It's based on your past borrowing and repayment history, among other things. A higher credit score can help you get a lower interest rate on loans.

Repayment

When you take out a loan, you agree to pay it back over a certain period of time, usually in monthly installments. If you don't make your payments on time, it can hurt your credit score and you may have to pay additional fees.

The Three C's of Lending!

It all basically comes down to The Three C's of Lending which are credit, capacity and collateral.

Remember