Banks have a lengthy lending process which may be frustrating if you urgently need a large sum of money.
The waiting process can sometimes close you out of securing a great deal. To top it all up, banks might loan you money on some of your investments differently than you would have hoped.
Private money lenders can save your investments when you are at a financial dead end. A private money lender can be an individual or a company.
Here is a breakdown of how private money lenders work:
Private lenders can loan money to an individual or a company irrespective of their bank or credit union.
Private lenders offer different loans but commonly deal with personal and property loans.
Private lenders are not concerned with your credit report. They prefer working with people with bad credit.
Like banks, private lenders give loans then you pay the borrowed money back in installments with interest.
There are fewer regulations and monitoring on how you use the loan; hence the borrower enjoys the freedom to use the money for other purposes apart from its ideal purpose.
Unlike banks and other lending institutions, private money loans can be risky to both the lender and the borrower. This is because private money lenders follow the current set interest rates.
However, they are significantly more expensive than banks or other lending institutions. In addition, if the lender knows the funding is intended for a high-risk proposal, the interest rate is higher.
What Do Private Lenders Focus on Before Offering a Loan?
Private lenders will offer you a way out when you are stuck due to a lack of funding.
However, it is important to note that the goal of the private lender is to make money.
There are several factors that private lenders focus on before giving out loans.
They include:
Pricing Strategy
The private lender ensures that the cost of the loan to their borrower is competitive with their competitors. You’ll most likely have to give collateral for your loan, and your lender will secure themselves in case you default.
Exit Strategy
An exit strategy is important to the private lender as they need to know how the borrower plans on settling the loan.
Borrower Credit
As much as private lenders don’t pay attention to bad credit, they check the borrower’s credit report. The credit score helps the lender determine how to treat your loan.
Are Private Lenders Safe?
The safety of getting funding from a private lender is iffy as they lack licenses like banks. However, private money lenders must adhere to federal and state usury laws while other lenders follow the set banking regulations.
Some states limit the number of loans an individual or company can offer, and if they cross the limit, they should get a banking license.
The risk of private money loans affects both the lender and the borrower. Borrowers’ risks are:
It is important that the borrower knows her source of funding. Make sure the money is legit, and the loan will stay intact.
If the borrower is looking for funding for a property like a rental space and the loan falls apart, it may land him in serious trouble.
It is best if the borrower reads and understands the loan agreement so he will be in a position to take a loan he can service.
The loans are usually short-term, and the borrower may not be able to raise the full amount in due time.
Private loans come with a higher interest rate, which may cost the borrower even his profits when making payments.
The risk the lender faces is giving funding to a borrower who uses the loan for a risky investment and defaults on payments. The lender will likely only get some of their money back if they take legal action.
When lending a generous amount of money, lenders require collateral. Collateral can be the deep of the property or insurance on the company.
The purpose of the collateral is for the lender to ensure they get paid in case the borrower defaults.
What Is the Interest Rate for Private Lenders?
The interest rates for private lenders tend to be higher than for banks and licensed lenders. The interest rate ranges from 15-20%. The rates may be lower than market value if you get a loan from a friend or a relative. Private money lenders give loans with the expectation of a balloon payment by the end of the set period.
The interest rate is referred to as the lease rate when dealing with larger assets. The lender calculates the interest rates directly proportional to the possible risk associated with the borrower. Depending on the lender, the borrower pays interest rates monthly, quarterly, or twice a year.
Interest rates can be fixed or floating. Fixed interest rates remain constant throughout the loan period while floating rates can fluctuate depending on the reference rate.
Is Personal Lending Legal?
Yes, personal lending is legal, and the borrower must repay the loan. You can take legal action against the borrower if you don’t get your money back.
If the funding is from a friend, family member, or private lender, both parties should draft and sign an agreement to avoid future conflicts and misunderstandings.
Personal loan agreements or contracts are legally binding.
The basics of the contract are:
How much money are you borrowing from your lender
The duration of time needed to pay the loan back
Interest rates
Any charges or penalties if the borrower defaults payments.
Contact Us Today
Do you need a private loan before that life-changing chance closes on you? Can you offer to fund individuals or companies in need of funding?
If you fall under either category, then Private Money Billboard is your marketplace, as we offer an online platform for borrowers and lenders to seek each other out.
We hook you up with quality leads via inbox or phone. Reach us for ideal matches between lenders and borrowers. For more information, reach out to us through our online form.