What Is a Lending Company?

A lending company is a public or private organization that grants funds to borrowers with the intention of being repaid at an arranged interval. The transaction is known as a loan, and many companies work in specialized industries, such as automobile or mortgage lending.

Borrowers may receive cash or access to a usable balance of funds with a deferred payment arrangement, known as credit. Depending on the lending company's terms, borrowers may be responsible for interest and fees in addition to the loan balance. In lending contracts, the company also specifies each borrower's payment period and any consequences for violating the agreement terms or paying late.

Loans are typically set up as installment or revolving balance loans. In an installment loan, the lending company typically approves a one-time, lump sum of money, and the borrower makes fixed payments to reduce the balance. Revolving credit is an automatically approved amount the borrower has access to at all times; he must simply make minimum payments on any outstanding balance.

Lending companies offer different forms of credit based on the amount of risk involved in the arrangement. For example, secured credit is typically reserved for expensive purchases, such as homes and vehicles. This form of credit allows the lender to seize specified assets if the borrower doesn't satisfy the contract agreements. In contrast, lenders have no guarantee of reimbursement when approving unsecured credit, so this form of lending is commonly used for utility payments and credit cards.