Before scrutinising the role of a money lender, one must know what a money lender is? Sounds cool! Right?
Okay then, let’s deep dive into the world of money lenders and their roles!
What is a money lender?
Well, the word lender is versatile, a lender can be a person, a group of the public or private sector, or a financial institution that provides funds to a person or a business with a supposition that funds will be repaid. Repayment will be in the form of payment of fees along with interest. The repayment process takes time as it is done in increments, as a type of monthly mortgage payment or as a form of a lump sum.
Still, doubting the money lenders? Let’s make your mind flush out all the doubts by reading further para.
Lenders give funds for abundant reasons, for instance, for a home mortgage, a loan for automobiles, for starting a new business. The terms and conditions for a loan are predefined. For example how long the loan period will be, what will be the consequences of the missing payments and default. If one wouldn’t be able to pay the refund then the lenders have the authority to go to the collection agency to retrieve the funds that are due from the past.
Your mind might be doing a roller coaster ride like how the lenders make the right decision to provide the loan? Well, good question! Let’s know in depth about this.
How do lenders make loan decisions?
Individual borrowers: To get yourself a loan, you must have a good credit history. As the moneylender first scans your history and reads all your credit reports, which has the entry of the other lenders, their extending of credit, what type of loan was that, how you have repaid the fund, and many more. The credit report aids the money lender to get insights into whether the borrower is perfect for getting a loan or not, or whether they are comfortable managing the payments which are fully based on their current job and salary.
The moneylender also assesses the available capital amount of the loan taker, which consists of their savings, investments, and other assets that could be used to fulfill the loan if the household income will prove to be insufficient. As it helps in the matter of a job loss, or any other spontaneous financial challenges. The money lender can also ask the future plans of the borrower, in the sense that what are they planning to do with the loan amount, such as buying a property or a vehicle. Other factors are also considered such as economic and environmental conditions.
It was all about the individual borrower, let’s see how a business borrower works with money lenders.
Business borrowers: The private institutions, angel investors, and venture capitalists lend money based on their own norms. The lenders will also take note of the purpose of the business, what are the characteristics of the owner, how the business operates, what are its annual sales and growth.
Whereas the small business owners prove their ability for loan repayment by giving the lenders their both personal and business balance sheets. In the balance sheets the description of the assets, liabilities, and the net worth of the business along with the individual.
If you are a borrower, then you must know which money lender you have to approach:
Sources of borrowing and types of money lenders:
- Licensed financial institutions: The commercial banks which are already licensed by BNM are allowed to aid the individuals, by providing them with financial products and credit services.
- Co-operatives: They are regulated under the control of Suruhanjaya Koperasi Malaysia (SKM), is an agency that works under the Kementerian Perdagangan Dalam Negeri, Koperasi Dan Kepenggunaan (KPDNKK)
- Licensed money lenders: The money lenders are licensed under the Kementerian kesejahteraan Bandar, Perumahan Dan Kerajaan Tempatan that gives loans to individuals. They don’t accept the deposits and their interest on the loans is higher than the sky.
- Unlicensed Moneylenders: Well if there is light then there’s dark, in the same way, if it is licensed then there will be unlicensed. These money lenders are generally referred to as loan sharks. As the operation, they perform is illegal. Thus, you are advised to not borrow money from a loan shark.
Do not get wound up with money matters, as money lenders are lending you a hand, all you have to do is to hold their hand, with proper terms and conditions, and start your dream with a new hype.