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What are the different types of lending institutions?

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Quick Answer

Banks and non-banks are the two primary categories of lending institutions. Banks include commercial banks, Internet banks, and savings and loans. Non-banks include brokerage firms and mutual fund companies. The main difference between the two types of lending institutions is that banks accept deposits, whereas non-banks do not.

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Full Answer

Most loans are granted through commercial banks. Savings and loans are also a popular lending option, although they have different procedures and ownership structure, and typically offer more competitive rates for deposits and loans. Internet banks don’t have brick-and-mortar buildings, which keeps their overhead to a minimum. This allows these institutions to offer customers lower interest rates on loans and higher yields for deposits. Most Internet banks are FDIC insured and have Federal Reserve backing.

Although brokerage firms are more well-known for handling stock trades, many of these institutions allow customers to borrow, issue checks, and participate in other activities offered by traditional banks. Not all brokerage firm accounts are insured by the FDIC. Mutual fund companies offer many services similar to banks, including lending, check writing and debit cards. Although not a traditional lending institution, payday lenders offer short-term, unsecured loans in small amounts. As of 2014, payday loans are legal in 27 states.

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