Question

In: Finance

Describe the advantages and disadvantages of using a regulated lender such as a bank or credit...

Describe the advantages and disadvantages of using a regulated lender such as a bank or credit union.

Solutions

Expert Solution

The various advantages and disadvantages of using a regulated lender can be laid down as follows:

Advantages:

  • The banks are highly regulated by the central bank of the country and thus, they offer security to the borrower and depositor.
  • Banks have wide range of schemes for its borrowers, which allow borrowers to get credit with ease and without hassle.
  • The rate of interest is usually low and is directly linked with the monetary policy of the central bank and hence impact on rate is also visible from time to time. Such is not possible with any other private lender or institutions.
  • Credit unions are non profits and thus they does not aim for higher rate of interest or unjustified fees from its customers.
  • Customers are the owners of a credit union

Disadvantages:

  • Banks usually have stricter rules as well as regulations for lending and thus needy borrower may not be able to get the necessary funds until rules are met.
  • Cost of taking loan is higher from the bank, bank passes its overhead costs to customers.
  • Credit unions does not have access to latest technologies and thus services may not be of high quality as compared to other private lenders or banks.
  • The ATM's of credit unions are less in numbers.

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