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Sometimes when people hear about private lenders, the thought that comes up is family and friends. This is how it seems but in business terms it is nothing like that.
Private lenders can not be said to be anything like credit unions, banks or even financial institutions but are more like non institutional lenders who grant loans to individuals or businesses. Taking a loan from private lenders can be a bit easy for a borrower but not being able to pay back loans from private lenders can cause a lot of havoc to the borrower.
Private lenders can, therefore, be described as individuals or organizations that lend money to borrowers be it individuals or businesses to solve their financial issues.
Loans from private lenders are easily assessed due to the fast processing time. This helps borrowers get the loan from private lenders fast enough to sort out their financial problems before they become worse.
Most borrowers prefer the private lenders to the traditional lending agencies like the banks who take a lot longer to process loan applications. The private lenders usually grant loans based on their relationship with the borrower so the loans are lax with regards to qualifications, approval etc. Sometimes repayment of the loans are tailored to suit the borrowers finances.
Having a small business and looking for credit can prove to be difficult especially from traditional lenders. Private lenders have therefore become the preferred choice for these small businesses because of their less strict requirements.
Difference between private lenders and traditional lenders
The traditional lenders and the private lenders have differences which cant be ignored. Let’s discuss these differences below.
The difference in APR’s
With private lenders, the APR’s are very high, sometimes as high as ninety percent which is extremely high and can badly affect a borrowers repayment.
Whereas the public lenders have lower APR’s which can sometimes go as low as single digits so far as the borrower meets the requirements stated by the public lender.
The paper work requirements differ
Getting a loan from traditional lenders requires a lot of paperwork since they don’t grant loans online. Due to the fact that the approval of the loan goes through several departments, all these departments sometimes require some documents.
But for private lenders, fewer documentations are needed to qualify for a loan with them. This makes processing of loans by private lenders faster because they have fewer documentations to go while it’s the opposite of that for traditional lenders.
The traditional lenders have very precise and strict requirements to qualify for a loan and this is the reason most borrowers prefer private lenders. Banks and non-bank financial institutions adhere strictly to these requirements because they are under regulations.
For these traditional lenders, to be able to qualify borrowers need to have a very good credit score which should be seven hundred and more. This is totally opposite for private lenders, who don’t require a borrower to have a good credit score. In fact these lenders don’t even conduct credit checks on their borrowers.
The period between application and approval
Both traditional and private lenders have their requirements that they require for a borrower to qualify for a loan. However, the period between the application and the approval of a loan is where the major difference is found. The time it takes for a loan to be approved by a traditional lender even when a borrower meets all requirements takes weeks and sometimes more.
With private lenders, approval of a loan can be the same day as the loan was applied. Sometimes the longest it can take is a couple of days. This makes it so convenient for borrowers who need money as quick as possible to solve an emergency.
Getting loans from private lenders
Everybody needs money urgently at a point in their lives. It can be a business, an individual or even families who need the money to deal with an unexpected situation. We will be lucky to have money to use when we are faced with an emergency situation. But not everyone is lucky, so the need to borrow money from a lender.
Unfortunately searching for a good lender is also a prime factor in how good the loan you get will be to your pocket with regards to repayment. The search for lenders is equal to searching for good loans. In as much as the need for the money is an emergency, care must be taken so that you don’t end up in the grips of scammers or predator lenders.
Private lenders and loans
Due to lack of knowledge about private lenders offering personal loans, some borrowers end up with credit card debts but later find out getting a loan from private lenders is much easier.
Credit card loans can be expensive especially when a borrower defaults in repayment. Unfortunately, most borrowers are not aware of this is end up in this mess. And interest rates on these personal loans are way lower than that of the credit cards.
Browsing the internet can help compare the rates, charges, terms and conditions of different lenders until a decision is made on the lender to settle on. If you are searching for a loan for the first time, you can ask for help from someone who has taken a loan before.
What a first time borrower can also do is to ask a lot of questions on the websites provided or through email addresses of these lenders. This can help a first time borrower also ask all the necessary questions needed.
This will help you avoid some mistakes that first time borrowers make. The advice can come from friends and family or from online people who have been victims to scams online.
Some common points that a first-time borrower must consider are :
- Knowing the profits private lenders granting
- Understand the diversity that exists between the traditional lenders and private lenders.
- The downfalls associated with loans from private lenders.
- All the differences between private loans and other types of loans on the market.
- Do you have collateral to use to secure a loan if it’s requested for by a private lender?
Private lenders and who can use them
If you a looking for a short-term kind of loan to sort out a financial problem, going to a private lender for a loan will be a good idea. The same way a long-term loan from private lenders is also one of the ways to help borrowers out.
Private lenders are good for people known as the fix and flippers who buy houses or properties, renovate or fix them and then sell them. The two main people that private lenders are best for are the fix and flippers who need short-term loans.
And the second type of people known as buy and hold investors, need a long-term loan. These people buy the properties, renovate and rent them out. Private lenders are therefore good for both short term and long term loans needed by investors to get their businesses underway.
These investors ordinarily will not qualify for loans from the traditional banks or non-bank financial institutions.
Things to look out for in private lenders
Choosing a private lender is one of the major decisions taken by a borrower when he or she wants to borrow. The below outlines a couple of things to look out for.
Number of years in the business
Most lenders make sure the number of years they have been in existence and sometimes the number and amount of loans they have been able to offer borrowers. Borrowers should also look out for lenders who have given over hundred loans, this information can be found on the websites of lenders.
If you find a lender who has stated their capital on their website also shows that the lender has enough experience in the market.
Does the lender specialize in real estate?
Most private lenders have real estates as part of their specialization. Make sure the lender you will finally choose is the one you can have the specific kind of loan you need.
Charges and interest rates
No private lender has the same interest rates or charges, each private lender has their own interest rates and charges. Basic interest rates range between seven to twelve percent whiles other charges on the loans are between one to ten percent.
What borrowers can and should do is to surf the internet to find lenders who offer lower rates and charges.
Late payments, as well as a payment default, also accumulate some charges and borrowers must know this and look out for it when going through the websites for lenders.
Another thing a borrower should out for is lenders who charge a fee for paying back the loan before the agreed time. Some call it prepayment penalty.
A preview of how private lenders work
Most private lenders offer loans with a property as security or collateral. Such loans that have collaterals are used to buy houses, condos etc. We can have individuals as well as organizations that qualify as private lenders.
These individuals can be a friend, family member etc. that is why private lenders are sometimes known as relationship-based lenders.
Typically private lenders are categorized into three different categories which are all based on the kind of relationship the lender has with the borrower.
The categories are
- The primary category which has friends and family.
- The secondary category which has personal and professional associates, colleagues
- The last category is the third party where we have accredited companies who do private lending.
The third party category is the far away from the relationship based lending which is known for private lending. Although they are the furthest away from a relationship based lending, these companies have structures which makes lending from them more organized. With regards to their rates, charges, terms and conditions etc.
This is to say in the first and second categories that are the primary and secondary category, the rates vary extensively based solely on the relationship the lender has with the borrower.
The best thing for a borrower is to know how to look for the best private lenders to get the best loans most suited for the purposes the loan is being sorted out for. Not going through some of these steps can land a borrower in situations that can further plunge him or her into further financial crisis.
Private lenders and some of its benefits
Private lenders offering loans have so many benefits, making it one of the sought after kind of lending by borrowers.
Approval of loans by private lenders for bad credit holders
When traditional banks decide to give loans to customers or clients they rely mainly on the creditworthiness of the individual and this is through the report they get from credit bureaus.
The banks and non-bank financial institutions follow strict regulations, therefore, go by the regulations. The main purpose of banks and other financial institutions is to make money. To avoid losing money through borrowing to the wrong people these banks and financial institutions have to make sure the one they are lending to will pay back the money loaned.
With private lenders, there are no restrictions to them so are in a better position to loan to borrowers who are considered risky.
The process of approval is fast
If your need for money is very urgent, the traditional banks are not the place to look for money. Their processes take a long time and requirements are a lot with a tiring application process.
On the other hand, when it comes to private lenders the application process for loans are less cumbersome and the approval period is much quicker. The longest time a loan will take to be approved is a couple of days which is far less than that of the traditional banks which can take weeks or even in some cases a month or more.
Approval is easier with private lenders
Loans can be denied by traditional banks because of a borrower’s bad credit if a borrower is self-employed etc. The above-mentioned reasons for traditional banks and other financial institutions to deny a borrower access to a loan does not apply to private lenders.
What a private lender is more interested in is that the borrower can show some proof of income as well as security.
Compared to credit cards, private lenders are more affordable
If we are to compare, traditional banks offer much lower interest rates as compared to that of private lenders. However, if we compare interest rates of private lenders to credit cards, it is much more affordable with private lenders.
Flexible payments terms
When you borrow from the banks and financial institutions their repayments plans are strict and firm. There is no space for a borrower to have negotiations about repayments because they are stated in the terms and conditions of the loan agreement.
The private lender, however, gives borrowers that freedom to negotiate a repayment that best suits each borrower so as to make paying back the loan more convenient. This allows borrowers to feel relaxed and less stressed when they think of repaying the loan.
A borrowers credit history is not checked
The banks and other financial institutions are mandated by law to conduct a credit check on all borrowers that come to them.
So these traditional banks have no choice but to do a check on their borrowers.
Unfortunately when this check is conducted some borrowers fall short and therefore denied credit due to that. Some borrowers don’t even have any credit history at all, because of two things.
Either they have not taken a loan before or the institutions they have taken credit from have not reported to the credit bureau. Both scenarios still against borrowers who seek credit from traditional banks. The good news for borrowers who have a bad credit history or no credit history at all is that private lenders do not conduct credit checks on its borrowers.
Drawbacks associated with private lenders
Private lending has quite a number of drawbacks borrowers must be aware of. See below for some.
Some private lenders forge documents
The internet is full of scammers and predator lenders who flaunt as private lenders. They display fake documentations and stamped papers, receipts etc. to show they are genuine.
Sometimes they forge the signatures of borrowers to take money from their accounts in case of default or show fake documents showing borrowers have transferred properties to them in case of default. Borrowers must be extremely vigilant when online and searching for lenders.
The process of recovery can be cruel
A borrower must be ready for the kind of harassment some of these private lenders bring. Recovery of their monies is what they are interested in and not the reputation of the borrower. It can be very embarrassing to borrowers when this happens.
Recovery agencies are also sometimes contracted to help with getting back the money borrowed by the private lenders. If a collateral is involved, it is taken over by the private lender when the borrower defaults in repayments. These kinds of repossessions are sometimes done illegally.
Interest rates are high
In as much as you can negotiate the interest rates with a private lender, it is still high. These interest rates can range between twenty to fifty percent which is on the high side reliant on the tenure and amount loaned.
There is no order as to how they calculate their interest rates. Each lender decides how much they want to charge considering there is no organization monitoring these lenders.
Luckily for private lenders, there are many borrowers who are looking for quick money and so will go along with these terms.
Most private lenders are not licensed
There are licenses for private lenders to operate however, most of these private lenders work without a license. Most countries are having a hard time monitoring these lenders and clamping down on the illegal ones.
It is also the responsibilities of borrowers to check and make sure any lender they work with have a license. Because without a license, the lenders does whatever they like and borrowers suffer in the end.
Private lenders target individuals and business such as individuals who have a bad credit history, small businesses, farmers etc.
Private lenders are best for short term loans
If you are seeking a personal loan for a short-term, then the private lender will be just what you need. However, because of the high-interest rates that come with a private lender, going for a long-term loan will only make you pay more at the end of the loan.
If you have a good credit score, the best place will be to get a loan from the traditional banks especially when you need a long-term loan
Private lending is here to stay. There are some few legalities to be ironed out to be able to screen out all the bad nuts from the market. The two most crucial things that show that a private lender is good are ;
1.The Experience : As in how long the private lender has been in business
2.The amount of money the lender can borrow.
Private Lenders work mainly in the real estates more often because most private lenders are familiar with the lending requirements and processes associated with real estates.And being familiar with something is essential to its success.
As a borrower, you can explore all the possibilities of getting a loan but if all these fail, applying for a private loan will suffice.
Make sure to apply to a licensed private lender like Afterloans. Otherwise borrowing from them will be at your own risk or even worse, there is a high possibility of you being scammed.
Note that a private lender in the third party category is not your friend so make sure to negotiate good rates that you are comfortable with.
Disclaimer: All loans offered through this website are subject to credit and underwriting approval. AfterLoans.ca is a lead referral company, not a lender. AfterLoans only works with financial service providers that adhere to Canadian laws and regulations. Our lenders lend from $500-$5,000. Loans amortization is between 6-36 months. APRs range from 19.99% to 55%. The actual APR charged will depend on the lender’s assessment of your credit profile. For example, on a $1000 loan borrowed for 12 months at 29.9%, the monthly payment will be $97.24; with a total repayment, including interest, of $1166.88 There is also lender’s optional loan protection policy. In the event of a missed payment an insufficient funds fee of around 45$ may be charged (dependent on the lender). If you default on your loan payment plan the lender may terminate the plan and the remaining balance will become payable immediately. Our lenders employ fair debt collection practices, but will pursue the payment of Outstanding debts to the full extent that Canadian law allows.