A common question we hear people ask is whether a bank is always a lender. In order to answer this question, we’ll first walk through what a lender is and how/where to find one. Choosing a lending institution or lending company is a big decision that could have a major impact on your interest rate, loan terms, and likelihood for approval. Get the facts before applying.
What is a lender?
First off, let’s define what a lender is. A lender is often a financial institution (though they can sometimes be organizations, pawn shops, peers, etc.) that offers to give you money in exchange for a promise that you will pay your loan back. Depending on whether your loan is secured or unsecured, a lender may be able to seize your home/car or garnish your wages should you default on your loan.
You must first apply to receive a personal loan. One approved, you’ll work with the lender to determine what the terms of your loan are–amount to be borrowed, interest rate, repayment period, etc. During this stage, the lender will also go over what happens should you fail to make your payments.
Do lenders need bank statements?
While a mortgage lender may need your bank statements to prove that you’ll be able to make payments on your home, this is not something that’s typically required for a personal loan. Other documents you may be collected to determine your eligibility for a loan are:
- Outstanding debts
- Past bankruptcy
- Tax liens and civil judgements
- Unpaid collections accounts
- Delinquent accounts
- Outstanding debts
All of these documents help the lender determine how much risk they would be taking on if they were to lend you money. The more dings you have with past institutions, the less likely you are to get approved.
What are the types of lenders?
There are a few different types of loans you can apply for, which will determine which institution you can borrow from.
One of these options is mortgage bankers and brokers. A broker helps you shop for the best mortgage rates and terms available, though this may come with a processing or origination fee. A mortgage banker is a large institution that has the funds to originate loans and create pools of loans.
A direct lender loan is when money is borrowed directly from the lender (ie: banks and credit unions). Their rates will be similar to a mortgage banker or broker, but you won’t have to pay a portion of the transaction like you would with a broker.
Secondary market lenders assist the national mortgage market by making it easy for money to move across state lines. This ensures there aren’t isolated pockets where mortgages aren’t available. Accountability comes in the form of regulations and guidelines that are in the best interest of the general public.
Can I borrow money without a bank?
YES! There are a ton of lending options out there that don’t require a bank and can help you out if you need money. Online options have made it easier than every for people from all over the country to borrow from their peers or online companies that specialize in personal loans.
Peer-to-peer lending (P2P), for example, let’s borrowers obtain loans from individual investors or funds. You can get money in the bank within seconds–all online. There are even larger banks that have built their own online lenders to provide customers with better interest rates. Lending is changing every day, so search around on the internet to see all the options out there.
Apply for a loan today
Lead Bank is a local Missouri-chartered bank that offers online personal loans through Helix by Lead Bank. If you have any further questions on the relationship between banks and borrowers, or how banks lend, feel free to reach out to us. We’d be happy to help with any lending industry questions you have.