There are many different types of lender that exist to service the consumer credit market. They vary in both size and the financial products they offer, but they all exist to provide borrowers with the credit they require.
Banks are perhaps the primary providers of consumer credit in today’s market. The ones most familiar to consumers are known as high street banks, due to the fact that they are a common sight on most town and city high streets. They provide services such as bank accounts, overdrafts, loans, mortgages and credit cards to all customers, as well as personal banking and private banking to a select few.
Though having a history of focusing on savings and mortgages, building societies now offer many of the same services as banks. They differ in how they are organised: while banks are private companies, or public limited companies answering to shareholders, building societies are built on a mutual model, with decisions being voted on by members (though they are run by boards of directors).
Credit unions, on the other hand, are run on a co-operative model, with members having even more of a say in their running than is the case with building societies. Also, members may be entitled to a share of any profits made, though these are likely to be small as most credit unions exist to provide services to those that find it difficult to obtain credit within a particular locale.
Peer to Peer Lenders
With the changing nature of the credit market, new types of lender are constantly emerging; indeed, peer to peer lenders are a relatively recent innovation. Peer to peer lenders bypass financial institutions, with small investors and individuals lending directly to other individuals and small businesses. The peer to peer loans they offer are often competitively priced.
Payday Loan Companies
Payday loan companies are also relatively new. They specialise in offering payday loans and same day loans to borrowers with a poor credit rating, and often attempt to get the funds into the bank accounts of borrowers within a few hours of a loan being approved. The problem with them, however, is that their loans tend to have extremely high interest rates and charges, meaning that many borrowers can get into difficulty when taking out credit in this way.
Most of these new lenders have websites offering their services, as do the traditional lenders like banks and building societies. As a result they can be classed as online lenders, despite perhaps also offering other methods of contact for those wishing to acquire credit.
In contrast, some money lenders have been lending to clients in local communities for a long time, since even before the advent of the modern banking system. These clients can become embedded in communities as residents can see them as the only option, even if there are in reality many cheaper lending options available.
Pawnbrokers are one such type of lender. They offer secured loans to people that bring in items to pawn: after a valuation, the pawnbroker will give the borrower money that must be repaid with interest. If the debt is not repaid after a certain period, the pawnbroker has the right to sell the pawned item.
Local lenders that visit clients in their homes to offer credit are known as doorstep lenders. These lenders generally do not require their customers to have bank accounts, and usually collect payments weekly. They invariably charge very high interest rates on the loans they offer.
Unfortunately there are a number of unlicensed lenders that operate with little regard for the law or good lending practice. They are known as loan sharks, and as their name suggests they should be avoided, as they often employ questionable means to enforce debt repayments.