Financial Dictionary -> General Finance -> Lender

In financial dealings a Lender (sometimes known as a creditor or mortgagee) is a financial institution (such as a bank), business, store, Credit Card Company or other service that grants loans and other forms of credit to a borrower. The lender sets out various terms of the loan, which are legally binding. These may include length of the loan, interest rates (might be fixed rate or adjustable rate), installment basis (for example monthly or weekly) and various other conditions.

If any of these terms are broken the lender may send warnings or enquire about what has happened. For example if a borrower fails to make payment the lender may send a letter asking why. If the borrower is persistent in breaking these terms the lender declares the loan default and will take further legal action.

This may include enforcing any collateral which was signed over when the loan was made. Which is an asset used to secure the loan, often a property. If the borrower defaults the lender is allowed to acquire the asset and sell it on in order to receive their repayment.

Before a lender grants a loan they need to be sure the borrower is risk free and will be able to make the payments on time and in full. In order to do this they may look at your income and utilize credit bureaus to get a grasp of your credit rating and financial history. This may just be a number score or if they are still unsure they may request a full report with lots of different data. All of this information is shared and legally available.

There are hundreds of different types of lenders out there, from bail bond agents who loan money to allow people to make bail, to stores that offer credit on certain products. A credit card is a form of lending with monthly terms.

Lenders make their profit on interest rates, which are a percentage of the money lent. If somebody takes out a $1000 loan and the interest rate is 5% then the borrower will be paying $50 on top of the original amount. Once the full amount is paid back with interest then the lender makes a profit.