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Understanding Retail Lenders

Understanding Retail Lenders
Rebecca Safier
Rebecca SafierUpdated February 24, 2023
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Retail lenders provide loans directly to consumers, rather than to institutions or other lenders. Some common examples of retail lenders are banks, credit unions, and online financial companies. So then what is a retail loan? A retail loan can include anything from personal loans to student loans to mortgages to credit cards. If you’ve borrowed a loan or opened a credit card, chances are you’ve worked with a retail lender. Read on to learn more about retail lenders and the role they play in lending money to consumers. 

What Is a Retail Lender?

A retail lender is a lender that works with individuals, as opposed to another lender or institution. Banks, credit unions, mortgage bankers, and online lenders all fall into the category of retail lenders. A retail lender is different from a wholesale lender, which underwrites loans for other lenders. A wholesale mortgage lender, for instance, provides loans to loan officers and mortgage brokers. Those officers and brokers then act as retail lenders to provide mortgages directly to homebuyers. 

How Does Retail Lending Work?

Retail lending involves issuing loans to qualifying consumers. Retail lenders are responsible for evaluating a consumer’s application and underwriting a loan. Since the 2008 financial crisis and the Dodd-Frank Act, retail lending standards have gotten tighter. Retail lenders need to have stricter standards to approve loans, as well as be more transparent throughout the process. Having higher standards can help consumers, as it may prevent them from taking on more debt than they can afford to pay back. Retail lenders will review your credit, income, debt-to-income ratio, and other factors before approving you for a loan. 

Examples of Retail Lenders

Retail lenders include any institution that provides loans directly to individual consumers. Some examples include: 
  • Banks
  • Credit unions 
  • Savings and loan institutions 
  • Mortgage bankers
  • Online lenders
  • Credit card companies 

What Is a Retail Loan?

Since retail loans refer to any loans borrowed by individual consumers, this category includes a wide variety of loan types. For instance, a retail loan is what a personal loan is.If you need to borrow money to pay for home renovations, education expenses, or a new car or home, then you’ll be pursuing a retail loan. Some retail loans such as personal loans are unsecured, meaning they don’t require personal loan collateral. Other retail loans are secured by an asset, such as your vehicle or home. Some loans offer a choice of both types. For instance, you can find both an unsecured and secured personal loan. 

How Do Retail Loans Work?

Retail loans can work in a few different ways. Loans typically provide a lump-sum of funds upfront that you pay back with monthly installments over time. You end up paying more than the amount you borrow due to interest. Your interest rate may be fixed, meaning it stays the same over the life of your loan, or variable, meaning it fluctuates with market conditions. You may have a choice of repayment terms, which can vary depending on the lender or loan type. Personal loans, for instance, often have terms between three and five years. A standard student loan term is 10 years, while mortgages often span 15 or 30 years. Lines of credit can also fall into the retail loan category. A credit card, for instance, offers a revolving line of credit up to a certain limit that you can draw on as needed and pay off as you go. With a credit card, you won’t have to pay interest if you pay off your balance in full every month. However, you’ll usually have to pay interest charges if you carry a balance over from one month to the next. 

How Can You Get a Retail Loan?

You can get a retail loan by applying directly with a lender or credit card company. Many lenders let you prequalify for a loan, meaning you can check your rates with no impact on your credit score. This option to prequalify is helpful for consumers, since it lets you shop around with multiple lenders before you commit. When you apply, you may have to provide documentation, such as pay stubs or tax returns. A lender will also likely run a hard credit inquiry to review your credit. Before you apply for a loan, review your credit report to make sure it doesn’t contain any errors. Some lenders let you apply with a cosigner if you can’t meet their underwriting requirements on your own. The amount of time it takes to receive your loan will vary by lender and loan type. A mortgage can take several weeks to process, for instance, while some personal loans can be funded the same day you apply. 

Types of Retail Loans

What is a retail loan? Here are some common examples. 

Personal loans

You can use a personal loan for almost any purpose, including home renovations, debt consolidation, wedding expenses, medical bills, and travel. However, you usually can’t use a personal loan to pay for higher education, investing, or a down payment on a home. Personal loan lenders typically offer anywhere from $1,000 to $100,000 with repayment terms from one to seven years. Most personal loans are unsecured, so you’ll need to have reasonably strong credit and a source of income to qualify. The average personal loan interest rate falls approximately between 13% and 27%, depending on your credit score. As mentioned, it’s wise to shop around and explore different personal loan options to find the best rates and terms for you. 

Student loans 

Student loans are another type of retail loan reserved for college and graduate students. You can usually borrow up to your school-certified cost of attendance, minus any other financial aid you’ve already received. Private lenders check your credit and income when you apply, which is why many undergraduates must apply with a cosigner, such as a parent, to qualify. Lenders usually send your student loan directly to your financial aid office, which applies it to tuition and fees. The office then sends the remaining funds to you to use on supplies and living expenses. 

Auto loans 

Auto loans are a type of secured retail loan that you can use to purchase a car. Since they’re secured by your car, you risk losing your vehicle if you don’t pay back the loan. You can often find auto loans directly from a bank or credit union or by applying through a car dealership. 

Mortgages 

Mortgages are also a type of secured retail loan that uses your home as collateral. If you don’t pay your mortgage, you risk going into foreclosure. Mortgage rates vary with market conditions and can be fixed or adjustable. Common repayment terms span 15 or 30 years. 

Credit cards

Credit cards also fall into the category of retail loans. A credit card offers a revolving line of credit that you can borrow from as needed and pay off as you go. You won’t have to pay interest if you pay your balance back in full each month. If you carry a balance from month to month, you will be subject to interest charges. Some credit cards offer a promotional period of 0% APR when you first open the card. Some also reward you with rewards like cash back or miles based on your spending. 

Pros and Cons of Retail Loans

Before borrowing a retail loan, consider both the advantages and disadvantages of these loans. 
ProsCons 
Access to funds There are interest charges 
Flexible repayment terms May have to pay fees 
Lots of options to choose fromCould affect your credit 
Pros: 
  • Access to funds. Retail loans give consumers access to a lump-sum of cash or a line of credit that you can draw on as needed. Borrowing a retail loan can help you finance a big purchase or other expense that you wouldn’t be able to afford otherwise. 
  • Flexible repayment terms. Retail lenders often give you a choice of repayment terms that may span several years. This flexibility makes it easier to find a plan that works for your budget. 
  • Lots of options. There’s a wide variety of lenders offering different types of retail loans, so you can shop around to find an offer that fits your needs. 
Cons: 
  • There are interest charges. Retail loans typically come with interest charges, so you’ll pay back more than the amount you initially borrow. 
  • May have to pay fees. Some retail loans also come with fees, such as an origination or administrative fee. Make sure to read the fine print before you borrow so you understand all the costs. 
  • Could affect your credit. Taking out a retail loan can decrease your credit as it will increase the amount of debt you owe. On the other hand, making on-time payments can help improve your credit score over time. 

The Takeaway

If you’ve borrowed money from a lender or opened a credit card, then you’ve likely borrowed a retail loan. Retail loans are simply loans issued to individual consumers, rather than to institutions or other lenders. If you’re in the market for a loan, it’s always a good idea to shop around with multiple lenders and compare your options. That way, you can find a loan that will help you meet your financial goals without derailing your budget. Lantern can help you find and compare personal loans so you can find the best offer for you. In just minutes, you can get offers from multiple lenders in our network.

Frequently Asked Questions

How does retail lending work?
What is a retail loan?
Are retail loans safe?
Photo credit: iStock/Kkolosov
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About the Author

Rebecca Safier

Rebecca Safier

Rebecca Safier has nearly a decade of experience writing about personal finance. Formerly a senior writer with LendingTree and Student Loan Hero, she specializes in student loans, financial aid, and personal loans. She is certified as a student loan counselor with the National Association of Certified Credit Counselors (NACCC).
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