What is a Lender and Where do I Find One?

A Deal with the Bank
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When you borrow money, that money comes from a lender. Lenders are often financial institutions in the business of making loans, but they can also be individuals (like friends and family) or organizations that are willing to lend.

Lenders can make a lot of things possible, but they can also cause problems. Just because somebody is willing to lend you money doesn’t mean it’s a good idea to borrow – make sure you have a solid plan in place for repaying before you accept a loan.

Lenders expect to get repaid. The terms of your loan agreement will describe exactly how the process works: how often you’ll make payments, how long you have to repay, how much interest you’ll pay, what happens if you fail to repay, and more. It’s helpful to evaluate all of those items – that way you’ll know what you’re getting into and how much each loan costs.

Finding a Lender

It’s almost always a good idea to shop around. Your best deal might not be with the first lender you talk to, and you can’t necessarily count on the biggest advertisers (or brand names) to deliver the best deals. The only way to know you’re getting a good deal is to talk with several lenders and compare the options.

You’re probably busy, so you may be reluctant to spend time researching different lenders. You’ll have to decide how much effort to put into things, but at the very least you’ll want to compare two different lenders.

The type of loan you need will determine how much choice you have: some organizations don’t do student loans, for example. For other loans, such as personal loans, you’ll have plenty of options.

So, where should you shop?

Ask around. Ask the people you know and respect for suggestions. Friends, family, advisors, mentors, and co-workers may have borrowed money in the past, and they can suggest lenders they’ve had good experiences with.

If possible, ask somebody with professional experience about the type of loan in question (if you need a home loan, ask a trusted real estate agent, for example).

Banks and credit unions are a good place to start with almost any type of loan. If the institution you work with doesn’t lend money, it’s a safe bet that they can suggest a reputable lender who does what you need. Banks and credit unions are a good choice for:

  • Personal loans
  • Auto loans
  • Credit cards
  • Home equity loans and lines of credit
  • Small business loans

Friends, family, and P2P loans are also an option. You might find that you have better luck getting approved or pay less if you borrow from “alternative” sources. Just keep in mind that money can sour otherwise good relationships, so think carefully before borrowing from loved ones. Peer-to-peer loans can help you skip the bank without putting relationships in jeopardy. It is safe to borrow from online lenders, but stick with well-known sites to avoid problems. 

Match the Lender to the Loan

For some loans, you’ll need a lender that specializes in a particular type of loan. Using the right loan for the job might be a requirement. For example, it’s hard to borrow enough money to buy a home unless you secure the loan with a mortgage – to do that you’ll need to find a mortgage lender.

What’s more, it might be in your best interests to use a specific type of loan (for example, federal student loans come with certain benefits, the interest rate might be better than you’d find elsewhere, and you might be able to qualify without a credit history).

Student loans: if you need to borrow for school, visit your financial aid office. They’ll explain your options and help you start the process. It’s usually best to start with loans from the U.S. government, but you can borrow from private lenders as well if necessary.

Home loans (purchase and refinancing): if you’re borrowing to buy a home, refinance, or get a home equity loan, you’ve got several choices. A mortgage broker, while not a lender, may have relationships with numerous lenders and can help you shop (but it’s still a good idea to compare any mortgage broker to at least one alternative).

Your bank or credit union may also have resources – whether they lend directly or employ mortgage brokers and loan officers.

If you're buying land, building, or renovating, construction loans come from specialized lenders as well as banks and credit unions.

Alternative sources: the sources above should take care of most of the loans you’ll ever need. However, certain situations might lead you to other types of lenders. In general, your costs and risks increase as you stray off the beaten path – so you should only do so when it’s absolutely necessary.

For example, hard money lenders offer short-term financing for real estate investors (but most homeowners are better off with traditional lenders). Payday loans and title loans provide small amounts of short-term cash at a high price. Furniture, appliance, and department stores also offer financing, but you can often find better terms elsewhere.