Types of lending institutions

A financial institution is an organization that is in the business of receiving cash deposits, giving out loans and investing on behalf of its clients. These institutions deal with different classes of clients and offer products and services based on factors such as the level of income, a person’s need and occupation. Loans are the most profitable and highly demand products in financial institutions. These range from personal loans, business loans, car loans, mortgages among others. Most financial institutions deal with all the categories apart from a few such as the housing cooperatives which specialize on mortgages.

First : Lending Institutions

The first category of lending institutions is commercial banks which not only give loans but also perform other banking related functions. By collecting and holding deposits on behalf of their clients, they are able to have funds to dispense as loans and earn interest in return. Commercial banks are credible institutions since they are regulate by the Central Banks in their respective countries.

Second : Saving and Credit Cooperatives

Second are the savings and credit cooperatives also know as thrifts which are mostly confuse with commercial banks but different in so many aspects. The first and most important thing to note about these institutions is that the amount of credit available to a client is usually determined as a percentage of their savings. The borrower is also expecting to have an active client of the institution within the period of time before they qualify for a loan. The main advantage of taking loans from savings and credit cooperatives is the low interest rates they charge. They are also regulating by the central bank of the countries they operate in.

Third : Credit Unions

The third type of lending institution is credit unions which are mostly nonprofit making organizations. They operate under regulations laid down by the central bank and just like savings and credit cooperatives, they offer low interest loans. These institutions are creating by a group of people with common interests. Be it a company for the benefit of its employees or investment groups. Members of the general public cannot benefit from credit unions.

Finally : Loan Sharks

Finally, we have the loan sharks who are individuals or institutions that offer credit facilities illegally. They mainly target the poor who are desperate to get loans yet they do not meet the qualifications demanded by licensed lenders. Hence, they give very lucrative offers initially but since they are not regulated. They change their terms and conditions in a way that will benefit them at the expense of the borrower. They charge ridiculously high interest rates and always recover their money by blackmailing and threatening the borrower. People are therefore warn against engaging these institutions and report to the authorities in case they suspect any such business.


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