The term “lender” or “creditor” refers to any person, group, company, bank or other financial institution that offers to loan money to borrowers, expecting it will be repaid in full. Lenders profit by charging fees on top of the original sum lent. Most of their earnings come from interest fees, but some creditors also have additional charges for their products.
A loan is a sum of money borrowed which is to be repaid within a set time period. That period is called the “loan term.” The original borrowed amount is the principal. The most common fee charged by lenders is interest. Interest is calculated using a pre-set interest rate, determined at the time of loan approval. Interest is paid in fixed intervals over the life of the loan and sometimes, may even be added to the loan principal.
Some loans are backed by collateral. This is referred to as a “secured” loan. Secured loans are less risky for the lender because they are backed by a physical asset. Unsecured loans are not linked to any asset and so the lenders are very careful when evaluating one’s eligibility for this funding. CreditNinja offers personal loans tailored to clients’ specific needs. Our personal loans come with flexible terms and repayment plans, and fair rates.
A line of credit is an account which, once approved, can be borrowed in increments.The total available to the borrower is the credit limit. With other types of loans, you get a lump-sum of cash – this is not the case with a line of credit. You can withdraw the balance at once or use the funds, as needed. The interest is only calculated on the amount borrowed, not the limit itself.
So, if you have used $1,000 of a $7,000 credit, you will have a $6,000 credit left and will only have to pay interest for the borrowed $1,000. Revolving credit, allows you to repay used credit which then replenishes the amount — which is not the case with regular lines of credit. This means that if your credit limit was $2,000 and you used $400, then repaid the same amount, you would still have $2,000 worth of credit available in your account.
There are two major types of creditors: direct lenders and brokers. Banks are the most widespread type of direct lenders, and they lend their own money to loan applicants. Your friends or family may also be direct lenders. In contrast, loan brokers do not give out their personal funds. Brokers connect borrowers with creditors. Brokers charge their clients a fee for their service. A typical example is a mortgage broker, which negotiates with banks or other financial institutions to secure the loan under the exact conditions requested by the borrower. Brokers can ease planning, preparation and applying for the loan. They help prepare all the documentation for the request and may even give legal advice if needed.
Creditors need to ensure their funds will be paid back in full. To do so, they analyze the financial history of loan applicants. The process is even more crucial for unsecured loans, as no collateral backs the loan, should the borrower default. Financial institutions use different tools to conduct credit analysis, from their own software to outside data. In addition, reports such as your annual credit report and a positive FICO credit score will maximize the chances of your request being granted. Lenders are more prone to working with clients that have a proven track record of healthy financial habits. Making on-time payments, keeping a low credit utilization rate, having no defaults and ensuring a stable income stream will improve your creditworthiness in the eyes of the lender.
To find your ideal lender, it’s important that you know your credit score. Creditworthiness is a very important factor that every lender will take into account when considering your request, regardless of the principal or the term. Keep in mind that CreditNinja doesn’t consider only your credit score for loan approval. We offer personal loans tailored to clients’ specific needs.
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