Borrowing From Money Lenders

Posted on Posted in Finance/Business

Ever since the concepts of money and trade were introduced, there has always been some sort of lending activity involved. Be it buying goods on credit with payment due for a later date or simply lending money with a promise of future repayment. In earlier days, money lending involved higher rates of interests, due to the absence of a centralized and legalized money lending body. But with the coming of commercial banks and licensed moneylender, interest rates have gone down considerably. The instances of defaulters have also plummeted. The involved individuals have a legal bound stating the repayment of the loan.


Although taking a loan has become a lot safer, the requirement of collateral has become more stringent than ever. Licensed money lenders have a specified set of commodities that can be used as collateral. Unlike the earlier days when no collateral meant higher interest rates. Collateral now include house, land, bank deposits, gold, bonds and securities among others.


While borrowing, borrowers should be careful as to understand the contents of the agreement terms and conditions completely. This makes sure that there are no misconceptions about the agreement. Often borrowers end up agreeing to the contract without complete knowledge of the bond.


Money lenders include commercial banks, specialized money lending firms and individuals and private money lending individuals. Only the latter being not licensed by the government to do so. This means that private individuals can lend money at any interest rates. They do not have to abide by any rules and regulations. On the contrary licensed money lenders have to abide by rules set by the government. They cannot charge exorbitant rates nor can they make a completely unfavorable agreement to the borrower. However they have much more security to ensure the proper repayment of the loan.

Different Systems

Often, different countries have different policies for money lending. For instance, in India, the interest rates charged by a money lender are the same for any individual borrower. However in some other countries like the US, interest rates are based on the personal history of the borrowing individual. This history includes the prior loans taken and repaid by the individual. It also includes the time taken by the individual to repay it, whether the individual paid installments at proper time and any pending loans at the given time.


If the individual has certain unpaid loan dues, their credit history is negatively affected. It is also the case if the individual irregular in paying credit card bills. So individuals with a negative credit history are charged a higher rate of interest than those who pay their dues on time. This way, money lenders ensure that responsible individuals get loans at a lesser rate, which is a safer transaction for them. While they charge procrastinating individuals a premium in a bid to maximize their profits, this being the riskier transaction.

Money lenders are legally allowed to charge an individual extra for late repayment of the installment amount. So borrowers should be aware of the scope of charges that they may incur for different actions.

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