Sometimes known as a retail lending business, a consumer lending business is a type of loan institution that provides financing for wide range of different consumer purchases. Lenders of this type offer both secured and unsecured loans that can be used to purchase a vehicle, consolidate debt, or even establish a home equity line of credit. One notable exception to the offerings of a consumer lending business is the extension of mortgages to consumers, since the governmental regulations for mortgage lending are normally different than those required for other types of loans.
A consumer lending business may be a bank, a finance company, or a debt consolidation company. While retail banking concerns and similar institutions follow different regulations than those put in place for mortgages, applicants still have to meet specific qualifications in order to be approved. In general, lenders will consider factors such as the current income level of the applicant, along with the amount of debt he or she currently carries. The credit rating of the applicant is also often important, although there are some types of loan situations, such as payday loans, that are highly unlikely to include a credit check.
If an applicant does meet the qualifications of the consumer lending business, the contract for the loan is prepared and signed by both parties. The actual terms and conditions contained within the loan contract will vary, based on the type of loan that is involved, and specific legal requirements imposed by the laws of the land. Typically, those provisions are designed to protect the rights of both parties, while also identifying the responsibilities of both the borrower and the lender are assuming in return for establishing their business relationship.
The nature of the consumer lending business will often impact the range and type of loans offered. Banks often provide both secured and unsecured loans for purchases like cars, recreational vehicles such as boats, and loans for home improvements. Finance companies may also provide loans for these types of purchases, as well as debt consolidation loans. Payday loan providers offer short-term loans that normally require nothing more than a signature and the presentation of a post-dated check once an account is established.
In addition, a consumer lending business may offer a line of credit to qualified borrowers. One of the more common examples is a home equity line of credit, with the credit limit based on the current amount of equity in the property used as collateral for the credit line. Homeowners often use this approach, since they can use the line of credit to purchase materials for making home improvements on an as-needed basis, retiring the balance as they go. Doing so offers benefits over a standard home improvement loan, since interest is only charged on the current active balance, not the entire line of credit.
