Basics of the Lending Industry
What is Lending?
Lending is when one party, usually a bank or financial institution, provides money to a borrower. The borrower promises to repay the loan, usually with interest, over a set period of time.
Why is Lending Important?
Lending allows people and businesses to afford things they might not otherwise, like buying a home, starting a business, or paying for education. It spreads the cost of large expenses over time.
Types of Loans
- Personal Loans: For personal expenses, like a car or vacation.
- Mortgages: Loans for real estate, such as houses or condos.
- Student Loans: Cover tuition, books, and other education costs.
- Business Loans: For starting or expanding a business.
Captain Credit says,
"Different types of loans and how they are reported to credit bureaus can affect your credit score in ways you might not expect. I'll tell you more on my pages when you're ready."
Interest
Interest is the extra amount you pay the lender for borrowing money. The rate depends on factors like your credit score, debt-to-income ratio, and market rates.
Credit Score
Your credit score tells lenders how likely you are to repay a loan. Higher scores can earn lower interest rates.
Repayment
Loans are repaid over time, usually in monthly installments. Late payments can hurt your credit score and result in additional fees.
The Three C's of Lending are Credit, Capacity, and Collateral.
Remember
Loans can be helpful, but borrow responsibly. Only take on debt you can afford to repay, and always read the loan terms carefully before signing.