It used to be a challenge to find a lender who would lend money to you as the criteria of lending used to be very selective and there were very few lending institutions that worked for public lending. Initially the money lenders were banks and only banks. No other institutions would lend money to general public. But the banks had rules and regulations that restricted them to extend loans to only some people who would fulfill the criteria set by these banks for choosing borrowers. Soon other credit lenders also ventured into the market and the lending business became more competitive. These lenders posed serious competition to banks and even with their high interest rates they catered to the market that was not being catered by the banks. These loan lenders had relaxed policies of lending and their criteria were not as rigid as the banks. These lenders were out to earn by lending money and they were ready to lend to any one who was ready to pay the price that they had set.

After a while banks also became flexible with their lending criteria and lending was open to some more people. In response to that the lender credit companies further lowered their criteria and started lending to people with bad credit. The advantage was going to two parties in this entire process: the first one being the lending companies and second were the borrowers. A loan lender is doing business and his main interest in doing so is to earn out of the borrower?s pocket. Now the lenders give you some amount of money and then charge you interest on the principle amount and you pay back in easy installments over time. To further enhance their earning these lenders keep coming up with new forms of loans which is basically money lending at a cost but serves different purposes for different borrowers and are offered at different rates.

Payday Lenders

Payday loans have been banned by many state governments and are considered as scam loans by these governments. Many critics say that these payday loans are being given out to take advantage of the critical situations of middle and lower income groups. Most people who are caught between pay checks and need some cash apply for cash advances from banks and other payday lenders. Critics say that these lenders charge up to 390 to 780 percent of ARP on these loans and make money off the poor people?s bad financial situations. The amount loaned out as a payday loan is small and similarly $10 to $30 are charged on every $100 of loan. The loan is payable within two to three weeks. These loans are guaranteed by checks worth the principle amount as well as the fee of the loan that is signed by the borrower and submitted with the lender. If the borrower comes and pays back the loan he can take the check back but if he fails to pay back the lender will get the check cashed from the bank.

Commercial Lenders

One of the many factors determining the interest rate charged on a loan is the amount that is being loaned out to the borrower. In the case of commercial lending usually the amount of money lent is huge a commercial lender hence charges more interest then personal loan lenders. The money given out by business lenders is usually invested by the businessman to buy some equipment, start a factory, start a new business, and buy raw materials or some other activity that is related to a business. The money is lent to small business startups and also to established running businesses. People also take loans to invest in their business if they want to expand their operations. A hard money lender or a commercial lender can be a bank or some other lending company. The interest rate charged to business loans is according to the credit history of the business if it is an already established business and at times the lender would also want to see the credit history of the business owner or business owners in case of more than one owner.

Asset Based Lending

Asset based lending is done on basis of the asset that you collateral with the lender. Home loans and car loans that are secured come under this form of lending. In this type of lending the lenders credit is secured by the collateral which can be any asset that holds some value in the market. The lender who is lending credit to you is secured by this collateral that his money will be paid back and the interest rates charged on these loans are not very high. If these lenders loans are not paid back they have the authority and the right to sell off the asset that secured the loan to recover their money. The loan that is given out on the basis of an asset never equals the value of the asset it is only a percentage of the asset?s value so that the money can be recovered even if the borrower defaults after a few years. The risk is low in such lending and that is why the lender keeps the interest rate low. For the borrower this is the ideal type of loan as he can bargain on the interest rate that he is getting, stay prompt on installment payments and get his property back when he pays the loan back. If the loan is on a house the borrower can continue to live in it while he pays off the loan and only if he defaults will he have to move out of the house for it to be sold.

The opposite of such secured loans are unsecured loans and the lender has to risk his money that he is lending because the borrower does not pledge anything against the borrowed money. In the case of such borrowings and loans the interest rate that is charged is usually high so the borrower sort of pays for not lowering the risk for the lender. As the lender has lent the money the loan will be paid back on his terms.