What Is Lending?

If we know the meaning of lending in a normal way then we will find that it is a process in which the lender gives money or property to another person temporarily and he expects that man to repay the loan in time with interest. A lender can be anyone individual, a public or private group, or a financial institution that provides funds to another. Repayment may include payment of interest or fees depending on the lender who is providing it. The repayment amount can be monthly or lump sum which depends on the type of loan.

Types Of Lending

There are two types of lending option are available that may have different characteristics. Let us know more about their types:

Contemporary Lending

In the past decade, a sleuth of Contemporary Lending has emerged which are disrupting the traditional loan model.  In the past, the bank was the only way to gain finance. Now there are hundreds of reputable online Contemporary Lending solutions are available that can serve to facilitate a cash advance within a day. There are several types of loans available in this lending option which is offered to customers like an online payday loan, short term cash advance, unsecured loan, bad credit loans.

Advantages Of Contemporary Lending

The primary advantage of contemporary lending is the flexibility of the loan requirements in which the borrower is not required to provide a good credit score. The borrower just needs to meet very basic requirements to qualify for a loan. Due to the fast approval of the loan, the borrower does not have to wait long for the loan. Your approved funds directly transferred into your bank account without any store and site visit. In this type of lending, the borrower does not provide any collateral for a loan they just need a regular source of income. Less documentation, few minutes’ approvals, fewer prepayment penalties make it an advance or a good loan option.

Drawbacks Of Contemporary Lending

• Interest rates are higher than banks
• Hidden fees and charges
• Have to show a regular source of income
• Loans duration can be a  shorter

Traditional Lending

If we talk about traditional lending, then our attention goes directly to the banks. Banks are still seen as the most common place to find loans, mainly because they offer the best rates of interest compared to other lenders. There are many loan options available to the borrowers which are provided by the banks such as personal loan, small bossiness loan, car loan, Installment loans.

Advantages Of Traditional Lending

While paying interest on the loan, you will not have to pay the lender a percentage of your profit or share in your company. Interest rates are set so that you know the level of payment throughout the life of the loan. The bank applies the interest rate based on your credit score. If your credit score is good, then you may have to reduce the interest rate payment. You can also avoid the lender's fees.

Drawbacks Of Traditional Lending

• High prepayment penalties
• Less approval rate
• waiting for a response
• Lengthy approval process
• Good credit score required
• Purpose of the loan has to be mentioned

Which Lending Option Is best?

Each option mentioned has different advantages and disadvantages, and often depends on the type of person and their needs. For many borrowers, the ability to take quick finance with flexible terms is quite attractive in the Contemporary market. The fact is that for those who do not have a sufficient credit score to take a loan and do not want to pledge any collateral, this option can be quite economical.

If you want to qualify based on your credit score and you don't need the money the same day, a traditional loan may offer you a lower interest rate, higher borrowing limit, or better terms.