21 Jul What Is a Private Lender?
In Canada, we are used to working with public or traditional lenders, like banks or credit unions. We often deal with one of the Big Five for our daily banking. We use their bank machines. We have our paychecks directly deposited into our bank accounts. Our credit cards often come from them as well.
However, it can be difficult to get approved for a loan by a traditional lender. Those who are self-employed often have a hard time qualifying for a mortgage since they don’t receive a regular paycheck. Retirees also have trouble qualifying for loans, even when they have the assets to back them up. And anyone with bad credit can forget about getting a loan from a bank.
But sometimes, we still need that loan. That’s when a private lender can step in.
A private lender is “A lender who is not affiliated with a bank or traditional lender, and who may or may not normally be in the business of providing loans. Private lenders are not as constrained by regulations as traditional lenders are and can approve ventures that traditional lenders cannot.”
Private lenders provide a much needed service to many Canadians who just don’t fit within a bank’s traditional criteria. Since they don’t have to follow the same rules as the big banks, they can be much more flexible with those looking for a loan.
There are many benefits to using a private lender. Loans are easier to qualify for. That’s because these lenders look at someone’s whole situation and not just their income. Homeowners that have lots of home equity, for example, can receive a loan secured against their house, even if they don’t have a steady paycheck.
Another advantage is the different types of repayment terms. Some private lenders will accept interest only payments. This may be the best arrangement for someone who will receive a lump sum in the future, such as when selling a house or waiting for investments to reach their maturity date. Or for those on parental leave or looking for a job, it may be better to have smaller payments now, and then increase them when back at work.
Getting a private loan can be done much faster than through a traditional bank. The service also tends to be more personal. Those who are turned down by their bank often turn to a private lender for their loan, and are often successful.
The biggest drawback to using a private lender is that interest rates tend to be higher than those you would get at a traditional bank. This is due to the fact that these loans are considered more risky. With higher risk comes higher interest rates.
How do you apply for a loan from a private lender? Most are done with the help of an independent mortgage broker. In Ontario, private lenders tend to issue loans starting as low as $20,000 and terms can be for one year or more, depending on the amount.
If you would like more information on private lenders and private loans, contact us today! We’ll be happy to answer all of your questions!