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Money, What Is Lending and Types of Lenders?

Wednesday, July 1st, 2020

When your finances are tight you can apply for a loan. Applying for a loan comes with risks but it’s an easy way out for those who are struggling with money problems. The term lending refers to the act of allowing someone to borrow your property, asset or money. However, since it is it only borrowed then it should be returned. The borrower will either repay the lender in cash or return the property or asset back. Simply put, a lender is someone who provides a loan. This is a debt that the borrower must repay at a later time. Before you apply for a loan it is wise if you understand what lending is, how it works and the different types of lenders you can run to.

Understanding Lending

As mentioned earlier, lending is an act of extending help to someone who wants to borrow your money or property but the borrower is expected will return the money or property at an agreed date. Lending is more or less synonymous to applying for a loan. The practice of lending goes way back during ancient times when people borrowed animals and seeds and promises to repay what they borrowed when their animals give birth or when they are able to harvest their crops. In modern times, lending takes place when you shop at a store and you use your credit card to purchase a new pair of pants or kitchenware. It also comes in the form of a mortgage if you plan to invest in a home or student loans so you can finish your education.

How It Works

The term lending is a broad term and it could mean various types of transactions. One way of understanding how it works is by identifying different types of lenders. The 3 types of lenders can be broken down into three, – mortgage brokers (they are often referred to as mortgage bankers), secondary market lenders and direct lenders. Let’s try to dig deeper.

Mortgage Brokers

A mortgage broker is someone who submits your loan to a number of lenders. It’s safe to say that a mortgage broker can gain access to different loan programs. Just like a real estate broker, your mortgage broker will find the most competitive rates that will suit your financial needs. They usually charge you with a fee in exchange for their services. Some companies prefer to do business with mortgage bankers instead of investors.

Secondary Market Lenders

Examples of secondary market lenders are GNMA or Government National Mortgage Association, FNMA or Federal National Mortgage Association and FHLMC or Federal Home Loan Mortgage Corporation. Do you know that a lot of retail lenders have funds coming straight from a secondary market lender? Secondary market lenders are capable of assisting national mortgage market and this permits the flow of money from different states. The movement of these funds will help prevent mortgages from being available in selected states.

Direct Lenders

As the name implies, a direct lender is a person whom the borrower gets money from. Examples of direct lenders are credit unions and banks. Although mortgage brokers are allowed to lend money in selected states, the great thing about direct lenders is they can operate in all states in the US and they have the same rates. The difference is that with a broker you need to pay them additional fees for their services.


There you have it, three different types of lenders. Just in case you’ll need financial assistance in the future, you can use this as a reference. Before you apply for a loan, read about their terms and agreements as well as their interest rates.