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Rhodalyn M. Maddix
We describe private lenders as individuals or companies who give individuals or businesses loans to improve their lives or business.
These lenders are experienced in what they do and aware individuals and businesses sometimes need money urgently to solve some personal financial problems or business problems.
So the process of giving out loans is way faster than that of the traditional lenders.
Requirements of private lenders are not as stringent as compared with most traditional lenders.
This makes it easier for borrowers to get access to the money requested for quickly to take care of the problem they needed the money for in the first place.
Individuals for example are able to pay off debts which would have accrued quickly because of how fast they get money from private lenders.
One thing for sure is that private lenders are more comfortable lending to individuals or businesses that they have a relationship with than new borrowers.
Because of the relationship that has been established between the lender and borrower, scheduling a convenient repayment plan is easier.
The loan is basically from the lenders own capital which he or she uses to help others invest in other businesses and gets profit on the money loaned.
Private lenders are not consultants for banks or other private institutions, they are on their own and deal directly with the borrowers.
If you are an investor , a private lender can help you with that because their approval and requirements are fast and easy to get than when you go to a traditional lender.
Traditional lenders against private lenders
Either private lenders or traditional lenders, both do give loans to individuals or businesses, however what differentiates these lenders is the process and who they lend to.
Traditional lenders have been the oldest lenders on the market and have been loaning monies to individuals and businesses for as long as we can remember.
Pros for traditional lending are :
• You can get your mortgage rate lower from traditional lenders than from other lenders on the market.
• Due to the stringent nature of the traditional loans requirements, the rate at which borrowers default is minimal compared with other loans with lax requirements.
• The loan tenure for traditional lenders are much longer. The tenure can range from five years up to twenty years.
Private lenders usually give private loans based on endorsed third party procedures given by mortgage lenders.
Because this loan is that important selling it on less important financial markets is not allowed.
Most borrowers turn to private lenders when they have tried borrowing from traditional lenders using their properties.
But these properties do not meet the requirements of the traditional lenders so have been rejected.
Money taken from private lenders can then be used to renovate the property to meet all the standards of the traditional lenders so the borrower can go back to them.
To avoid having servicing two loans at the same you can pay off the private loan before going for the traditional loan.
However if your income is good enough and you haven’t exceeded your dept per income ratio, you can still take both loans and service them coherently.
Pros for private lending :
• Borrowers of private loans do not have one tailored guidelines that works for everyone.
Depending on your relationship with the private lender as well as your income can influence your bargain with the private lender.
• The processes you have to pass through to get a loan from a private lender is not cumbersome so borrowers loans are easily approved.
• Private lenders give private mortgages at cheap charges as well as other accompanying fees.
Just how do I find a private lender?
Private lenders are all over since they became recognized and people started using their services.
Your colleagues, friends or even family members may have their transactions financed by private lenders.
The problem here is how to find these private lenders who will meet your exact need.
Especially when you need a private lender who will help finance your mortgage or real estate property.
To find a private lender, you as a borrower must be prepared mentally so you don’t fall prey to sweet talkers who will scam you.
Below are a few guidelines to finding private lenders:
• You first have to know all there is about private lenders and how they operate etc.
• Get in touch with several private lenders who you think will meet all your requirements of helping to finance your real estate deal.
• Get your portfolio prepared and make it very appealing so you have the private lenders chasing you instead of the other way round.
• Now investigate and learn more about all your private lenders you gathered and choose one that has all the right referrals and recommendations.
• When all of this done go for the ‘kill’. Make sure your pitch to this private lender you have chosen is to ‘die for’.
Apart from the agencies or the companies that give private loans, there are also individuals or groups of people who give private loans who can be considered.
You can get private loans from colleagues, friends or family members who have money.
In our daily lives, when we need help or are in some kind of trouble the first people we go to our family.
If family is unable to help you to solve your problem then we begin to think of our friends before colleagues even come to mind.
How to find a private lender
This is naturally the sequence, however this is not cast in stone. Some people are closer to their friends or colleagues more than they are to their family.
With that said if you need money to invest into real estate, you can ask for help from family and friends who have money are very interested in investing in real estate.
The common mistake people make is to assume because the money comes from a family member it has to be interest free and repayments can be done as and when.
This thought has led to family and friends disagreeing to enter into any form of agreement with other family members or friends.
The best way is to draft an agreement and have other people co sign as witness for future references.
When this happens family and friends who have money will feel comfortable to invest in other family members or friends ventures.
A ‘bad’ thing about getting loans from family and friends is that he or she might need to get out or pull out of the investment because of some financial problems he or she is facing.
In view of this the investment he or she has done has to be dissolved forcing you to look for other investments which might be a bit stressful.
All of this must be stated in the agreement signed so that in case it happens it does not cause any rift between you and your friends or family members.
Sometimes the idea of roping in family and friends when it comes to business is not the best of ideas.
Simply because money matters can really cause so much tension and sometimes ‘hatred’ between family members.
So some people advice that you stay away from such business transactions with families of friends.
Silent private lenders
These crop of private lenders are called ‘silent’ lenders or investors because though they have the money you will need to help you invest they do not advertise themselves.
The likely investors are scattered all over, the only problem is most borrowers aren’t aware they are or do not know where to find them.
Trying to locate them can take some time, either weeks, months and this comes with some expenses.
You can locate some of these private lenders at
• From real estate and investment clubs
These investment clubs have a lot of members who are willing to invest. The clubs are a place they go to share ideas and also know what’s in vogue re investments.
If you are able to know when they have their meetings you can get to meet them and listen to their ideas as well as get someone to but into your idea and put in some money.
• Referrals from people (other investors)
Just like in investment clubs, investors know themselves so if you know one you can easily get a referral. In Case you don’t know an investor you can scout around. When you find one you might find your help, otherwise you should ask to be referred to another one.
• Events and seminars for real estate investors
Be on the look out for seminars and events for investors of real estates. Attend these events and you will get to meet a lot of investors.
• Forums online for estate investors
Go online and search for forums for investors and then you can narrow down to real estates investors if you don’t find what you are looking for in your first search.
• Mortgage brokers
Mortgage brokers can help a lot with finding silent investor since they work with investors
• Public records
With public records you will get all the information you need from lenders who give loans to buy properties to investment property owners.
Some of these rich investors ‘hide’ because putting themselves out there leaves them in an awkward position.
People take advantage of he fact that these people are rich and turn them into charity organizations.
To avoid all of the stress of having to provide for people who want to take advantage of their wealth, they stay out of the limelight.
Is it necessary to license private lenders?
In some states in America it is an offence not to be licensed before working as a mortgage lender.
While some states make it extremely difficult to work without a license, other states are not too strict on such lenders though it is against the law.
Another thing is that some lenders have been exempted from licensing so if the mortgage lender falls under that then they can work without a license.
What do lenders need to be licensed
As discussed earlier a mortgage lender can only operate when they have acquired a license of operation or have an exemption as approved the laws of the state.
To have an exemption, the lender must have an affidavit showing that the lender has been exempted.
The mortgage lender who is licensed must also have an originator license number as well as mortgage lenders license.
Who qualifies for an exemption
• An individual who gives a mortgage loan to family members such as wife or husband, nieces/nephews, brothers and sisters, children etc.
• If a credit union, savings and loans or a bank operates under the state laws then they will be exempted.
• Employees sometimes do get mortgage loans from the employers and these employers are exempted.
• When a broker is licensed by the state gives a mortgage loan with a duration of two years or sometimes less through a broker, that kind of lender also has an exemption.
In some states in United states of America like Maryland respect mortgage loans and do not take such transactions lightly at all.
Therefore if a mortgage lender is not licensed and also is not part of the exempted lenders under the states law, but gives a loan out it is considered a criminal offense.
Criminal offense punishable by law from imprisonment to monetary fines.
This does not only affect the people who give the loans directly but anyone who helped with the contract.
Mortgage is one of the biggest investment any individual will make especially when this investment can be passed on to generations.
So making a decision on your mortgage loan should take priority over a lot of things.
It will be better to take a mortgage loan and get your home and leave it to your children when there are no issues with the acquisition.
Instead of taking the loan without taking all the necessary precautions and then you or your children will have to deal the laws of the state.
Is it possible to get a mortgage loan with bad credit?
For most lenders a borrowers credit history is a vital part of the requirements to qualify for a loan.
There are other lenders who do not bother with a borrowers credit history, but for mortgage lenders a borrowers credit history is very important.
The amounts of monies given out for mortgage loans are very huge so lenders hardly or do not consider borrowers with bad credit or scores which are low.
This is because mortgage lenders see ‘red’ when your scores are low or your credit history bad.
You are considered a risk to them since you don’t have a pattern of a good borrower.
Things have even gotten more difficult to get a mortgage loan with how the economy is struggling.
Having a bad credit or low scores is therefore a total turn off for mortgage lenders.
With that said, there is a possibility of someone with a low credit score or bad credit history to get a mortgage loan. How?
When a borrower goes for a loan with a lender and has a bad credit history but brings a collateral to use as security for the loan most mortgage lenders will consider that borrower.
Not just any kind of loans will be accepted by mortgage lenders. The collateral must be of the same value as the loan requested for or in most cases a little more in value to the loan.
As a borrower you must also not just take a collateral as security for the loan but must also have a high dept to income ratio, so that it will not lower the value of the collateral.
Another option for a borrower who has bad credit history is to consider options of improving his or her credit so they can qualify for the mortgage loan in future.
Advantages and disadvantages of private lenders
Private lenders can be said to be more ‘sensitive’ to the borrowers needs as compared to traditional lenders who go strictly according to rules and regulations governing them.
In their bid to help reach a lot of borrowers, private lenders tailor their services to suit as many borrowers as possible.
Traditional lenders ask for so many documents to back your claims and also to convince them you really own what you say you have.
Private lenders on the other hand just need you the borrower to prove to them that you are employed and are earning a living as well as your identification.
With these basic documentations you will be able to get a loan from the private lender.
You don’t need to pay any anything to have your loan processed or attended to.
Disbursal of money is fast:
When your loan is processed, the time between the approval and you receiving the amount is very short.
It is said that you can get your money in less than twenty four hours with private lenders instead of days or weeks that traditional lenders used to approve loans.
Credit history is not important:
The banks , non-bank financial institutions, credit unions always make sure they check the credit history of borrowers to make sure they are have a good credit history.
Because traditional lenders have a quota they have to meet and giving money to bad credit borrowers does not help hence they avoiding them.
Those who do not have credit history at all also do need money urgently sometimes and traditional banks will not like to give them loans because they don’t know if they will be bad good with credit.
But private lenders are willing to give such people loans taking all the risk involved with lending to people with bad or no credit at all.
Getting a loan from private lenders have high risk. Below are a few of the disadvantages.
Interest rate is high:
The most common or well known disadvantage of private lenders is the high interest rate associated with private loans.
In as much as you can bargain on the interest rates to come down, they are so high the bargain might not be much and the rate will still be high.
Especially when compared to loans from traditional lenders and even other kinds of lenders.
Depending on how long your loan runs for a private loan interest rate can range from twenty to fifty percent.
Terms and conditions vary:
The private lenders do not have any rules governing them so decisions are taken solely on the relationship you have with the lender.
Urgency for money has pushed many people to accept the terms and conditions of private lenders.
With this private lenders are taking advantage of such borrowers to give loans at very high interest rates.
Repayment differs from borrower to borrower
Unlike the fixed payment schedules by the traditional lenders, private lenders have various payment schedules.
Depending on the amount that is approved to you and your monthly income you will have a payment schedule that best suits the amount loaned.
The smaller the amount the lesser your payment schedule for example it can be daily, weekly, two weeks or monthly.
Ways used to recover monies
These private lenders are ruthless when it comes to retrieving monies from borrowers who have defaulted.
Their aim is to get their money at all cost and the process they use to get the money back is not their worry but how to get their money.
Agencies that solely work with companies or lenders to recover their monies are used in some cases when the borrower is proving stubborn.
What these recovery agencies take from borrowers are mostly properties such as houses which they sell to get back their money.
The truth is private lenders can be of great help to a lot of people when they urgently need money to take care of some financial problems.
In the same vain private lenders can make you lose a lot of money because of the high interest rate they charge on the loans.
Before you go for a loan from a private lender, make sure you have weighed all the pros and cons .
If the pros outweigh the cons then you can go ahead, but make sure you will be able to finish paying back the loan otherwise you will pay more than you bargained for.
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.