Loans are given out by lenders to a select number of applicants. Banks and other types of lenders use a process to decide which applicants to select. They have different types of loan products that are geared towards types of customers. Consumer loans are one popular product. The loans business is huge and brings in billions of dollars every year.
Loans function by taking applications from potential customers. They use a process that is extensive and helps to sort out the people who are lower risks from the other applicants. Each company has their own process. The processes vary and look at varying pieces of information. Some companies look more at the credit score of customers. Others will look at the income or the amount of debt that the applicant owes. Many processes will combine all of the criteria and weight each one the same. They will look for someone who meets 60 percent or more of the criteria that they look for. Lenders have back office workers who work hard and long while they search for potential clients. Their job is important because lenders lose extensive amounts of money and become bankrupt if they choose the wrong applicants. The high risk applicants will borrow the money and never pay back their loans. They will use all of the loan funds and file bankruptcy afterwards.
Different loan products, example consumer loan
Loan products vary in type. The most popular ones are called a consumer loans. These items are geared towards people and not businesses. They function by being a set amount of money that is disbursed into a customer’s account after being approved. A set monthly payment is needed by a certain day in the month. Consumer loans do not bring in the same amount of money as business ones. However, they are easier to approve and there are more people than businesses that need to borrow money. Consumer loans can be used to purchase cars, merchandise, go shopping or to fund an important medical expense.
Business lending is geared towards businesses. These products function by being a set amount of money that is put into a borrower’s bank account within days of the loan approval. Many retail companies make almost no profit for most of the year. Christmas time is when they make money for the year. The rest of the year is when they operate off of money that is borrowed from the bank. They would not survive without these funds. They would risk going bankrupt or losing their employees since they are unable to pay them.
Revolving loan products are geared towards people and businesses. The business ones tend to be for larger amounts. These products are often known as credit cards or credit lines. They function by being a set amount of money that a customer has access to. The money can be accessed with a card or checks. Interest is charged based on how much of the line is used. These rates are normally high. There are also late fees and annual fees that are charged for using this product type.