A savings and loan or credit union may be a non-profit lender that issues mortgages within a community.
A lender is any institution or individual that lends money to a borrower. There are several types of credit organizations, including educational, commercial, hard-money, lender-of-last-resort, and mutual organizations. The most traditional type is the commercial lender, which is usually a banking institution, although it can also be a private financial group. This modality makes an offer to the borrower of certain terms, including interest rate and term of the loan, with the objective of maximizing its profit in relation to the borrower’s risk of default on the loan.
The Federal Reserve or the Treasury Department can act as lenders of last resort during an economic emergency.
Often, a loan is brokered, which means that the borrower is evaluated by a third party, who then proposes the loan application to several different lenders. These organizations are chosen based on the likelihood of accepting the specific borrower and may negotiate minor changes in terms to attract the borrower if they deem it desirable.
A hard money lender specializes in short-term loans that are primarily backed by real estate as collateral. They generally offer worse rates than a traditional banking organization in exchange for more flexible terms and a wider range of businesses they are willing to support. In some US states, they are forced to operate differently than in the country as a whole, due to conflicts between their standard practices and those states’ usury laws.
A mutual organization is a financial cooperative that operates to lend money to its members. The constituents put money into a collective, where it can then be disbursed to members in need of loans at friendly rates and in good standing. By eliminating the need to make a profit, mutual organizations can offer higher interest rates on deposits and lower rates on loans than traditional banking organizations. These groups include community credit unions and friendly societies.
A lender of last resort focuses on protecting a country’s national economy from collapse. It will lend to banking institutions on the brink of collapse in order to protect their depositors and prevent full-blown panic from rapidly pushing the economy down.
This term has also come to refer to private institutions that provide loans to people with a very low credit score or an extremely high risk of default. This type of lender offers loans at very high interest rates as a way to cover losses from the high default rate they experience with their borrowers. It can also refer customers to a shark loan, offering loans at even higher interest rates for just about any purpose.