What Is A Private Lender?
So, you need money, and you need it fast. Luckily there are options outside of bank loans. A private lender is non-institutional money loaner—meaning non-bank, slightly off the government grid. It is an individual or company that loans out money in a relatively quick and painless manner. This is usually secured by a deed of trust. Oftentimes, the reason for a private lender is to fund a real estate transaction. Private lenders have a lot of liquidity on hand, and go into the business to make money in a fast paced, independent way. If you are planning on using a private lender, there are a few things to keep in mind:
When should you consider a private lender?
One reason is urgency—if you need financing fast, it usually only takes a few days to be processed and approved. Another good reason to get a private lender is if you have a poor credit rating. Often banks will reject those who have poor ratings—this is also sometimes the case for the self-employed, as they often do not meet banks’ loan requirements.
What are the benefits?
The best benefit is that terms of private loans are usually much more relaxed than those offered by banks. There is usually a very short approval process, and often you can get the loan in only a couple weeks. That is, perhaps, why ‘flippers’ use private lenders a lot. House and property flippers buy places (fixer-uppers) to improve them and sell them for more than they bought them for. In those cases, private lenders are usually preferred to banks.
What are the negatives?
Private loans cannot be paid back over 30 years like a typical mortgage—in fact, most private lenders require the loan to be paid back fairly quickly. Often, six to 12 months. However, sometimes it can be two years. What this means is that if you are planning on using a private lender, you must be sure that you will have an instant profit. Another downside, however, are high interest rates. But if you are able to pay back within the right amount of time, it’s well worth it. For most students, this can be a challenge for you do not always know if you will have steady employment when you get out of school. If you know you will be set up with a job and can calculate a payment plan in which you can pay the loan off, that route is preferable.
It is always important to do your research on any lenders, including banks. Make sure you know all the positives and negatives before making a major commitment.