Definition of a Private Lender
Before we get too far into the details of the benefits of using a private lender, we should probably define what exactly a private lender is. Well, essentially, a private lender is an individual or institution that is not a traditional bank.
Essentially, they aren’t connected to a bank, credit union, or any financial institution. Many private lenders are known as online lenders because most of them don’t have a physical presence; everything is done remotely.
Private Lenders vs. Banks
While many people associate private lenders with bad credit, they are actually becoming more competitive in the loan industry. These lenders don’t just provide bad-credit loans anymore. Private lending provides many perks that traditional bank financing doesn’t.
| Factors to Consider | Private Lenders | Traditional Financial Institutions |
| Convenience | With private lenders you can often apply online. You don’t have to book an appointment or speak to someone until after you have completed your application. | With a traditional bank or credit union you are usually required to book an appointment to speak to a loan advisor in order to apply for a loan. |
| Speed of Approval | Because you have the ability to start the lending process online, you can sometimes get approved as fast as the same day. Otherwise it could just be a day or two. | This process can take a while and you most likely won’t receive approval at your appointment. You may have to sign the documents another day to finalize the approval. Some lenders may even require you to book another appointment. |
| Personalization | Because private lenders are more flexible, they are usually able to work with you to find a loan and payment plan that suits your needs. | You aren’t going to get much leniency when it comes to working with a traditional institution. |
| Terms | You usually have more options when it comes to the term of the loan. They often extend the loan and work with your paydays to make sure the loan is affordable for you. | There is normally only one loan offer. If you are unable to meet the terms you may have to decline the loan entirely. |
| Requirements | You can often get approved with poor credit and not be required to make as much income. As long as you can meet the minimum monthly income amount, you may be able to get approval. | There is a much stricter process for monthly income and credit scores. If you can’t meet the minimum, you will have to look elsewhere. |
| Cost | Interest rates can be higher than with a traditional lender, but private lenders also tend to allow you to add to the principal without penalty or pay off the loan early. However, they do usually have more loan fees than traditional loans. | More often than not, there is a fixed term to the loan. This means you have to pay it out for its full term. This could end up costing more in interest in the long term even though interest rates are generally lower. |
Private Lenders vs. Banks for Mortgages
If you are in the market for a mortgage, sometimes you might have better luck with a private lender.
| Factors | Private Lender | Traditional Financial Institutions |
| Convenience | Just like private loan lenders, private mortgage lenders allow you to apply online. | Traditional lenders usually requirein-personn meetings or scheduled phone appointments in order to apply for a mortgage. |
| Speed of Approval | The approval process is much faster. This is partially due to the application process. | It often takes much longer for a mortgage to be secured. This is due to the longer wait times as well as the stricter application process. |
| Personalization | Many private mortgage lenders often deal with more than one institution that will offer you money. This allows them to shop around and find the best rate for you. | Since there is only one lender they tend to be less lenient with their terms. There are also more regulations so it becomes more difficult for them to allow flexibility. |
| Terms | As mentioned above, they usually deal with more institutional issues. Even if they don’t, fewer regulations allow them to be more flexible and better accommodate your needs. | What you are offered is what you get. You have to keep this for the agreed upon term. You can negotiate once it is time to renew. |
| Requirements | As long as you meet the CMHC down payment regulations, you can usually get a mortgage with a lower credit score. | There is a credit score minimum you need to meet, whether you need to meet CMHC regulations or not. |
| Cost | Interest rates tend to be higher with a private lender. | They offer lower rates with stricter terms. |
Private Lenders vs. Hard Money Lenders
Before we dive too deep into this one, we should probably explain what hard money lenders are. Hard money lenders are private or individual investors who offer non-conforming, short-term loans on either investment or commercial real estate. These types of real estate loans are different from traditional mortgage loans or private mortgages.
| Factors | Private Lender | Hard Money Lender |
| Convenience | They are easy to apply for and offer faster lending times than traditional lenders. | There are no regulations so hard money loans are easy to obtain and can happen very quickly. Your financial situation has little impact on these loans. |
| Speed of Approval | The speed really depends on your lender, but they’re typically much faster than traditional lenders,especially since you don’t have to make any appointments. | These happen very quickly and the closing can typically happen as quickly as 24 hours. |
| Personalization | There is a lot of flexibility with a traditional mortgage from a private lender. They have a lot of flexibility. | There is typically not a lot of flexibility with these loans. |
| Terms | They take on the average term of a mortgage. Usually 3 to 5 years. | These have short loan terms, typically ranging from 6 months to 2 years. |
| Requirements | You still need to meet the traditional income requirements but there is some credit flexibility in you putting down at least 20%. | Hard money lenders are more concerned about the value of the asset than your requirements. This includes your credit history. They typically approve what traditional mortgages won’t. |
| Cost | Interest rates are slightly higher than bank and credit unions, but still very affordable. There are still closing costs involved. | Interest rates are typically quite high and there is an origination fee of between 1%-3% on top of that. |
| Audience | Anyone looking for a mortgage can go through a private lender. | This is only available ro real estate investors, not for personal property purchases. |
With hard money loans, you may end up spending more money than you need to. These types of loans are often just a last resort. That being said, if you are looking for an investment property and already own something else, you may want to consider a home equity loan instead. These let you access up to 65% of your home’s equity, minus what you owe on the mortgage.
Private Lenders Vs Payday Loans
While private lenders and payday loans both offer unsecured loans, there are some major differences.
| Features | Payday Loans | Private Loans |
| Amount | $100 – $1,500 | $500 to $50,000 plus |
| Term | 14 days to 62 days | 6 months to 5 years |
| Primary Use | Emergencies | No restrictions |
| Cost to Borrow | $14 per $100 | Starting at 9.99% |
| Credit Check Required | No | Yes |
| Can Improve Your Credit Score? | No | Yes |
How Private Loans are Better than Traditional Loans
When it comes to lending money, both traditional banks and private institutions have advantages to consider. While most people are more familiar with traditional lenders, private lenders have more positives than you may think.
You Get Your Funds Faster
With traditional loans, you can be waiting up to a few weeks to receive your loan. With private lenders, you can get your loans as fast as the same day. This is because many private lenders use e-transfer. They are also using more technology than traditional banks to help you get your financing faster.
Avoid Going to the Banks
Many private lenders are capitalizing on technology. This means the entire loan process can be done from anywhere. You no longer have to make an appointment or go into a branch in person. You can start the process in a few minutes online and finish it the same day.
More Flexibility With Your Credit Score
Unlike traditional banks, many private lenders accept a wide range of credit scores. This is because they look at more factors than just your credit score. They also have fewer regulations, which gives them more flexibility. This gives you access to the financing you need while adding a line of credit to your credit report.
Flexible Payment Options
Even though payments are a bit higher with private lenders, most will allow you to pay off the loan at any time with no penalties or extra fees. Because of this, you could actually end up saving more money in the long term.
You Can Increase Your Credit Score
If you are getting a loan with a private lender because you can’t get your loan approved by a traditional lender, or you got approved with a higher interest rate, you can use the loan to increase your credit score. By making your payments on time, you are adding positive tradelines to your credit report while increasing your score, essentially improving your future financial history.
This means the next time you need to apply for financing, you may be able to get it at a lower interest rate. While this is also the case with traditional banks, the approval rate is easier, allowing you some more flexibility instead of having to turn to higher-interest loans that don’t get added to your credit report.
Are Private Lenders Safe to Use?
While private lenders are safe to use, they do have higher costs than traditional banks. That said, they are subprime lenders and offer guarantor financing, since they rely heavily on income verification rather than just your credit score.
When you’re working with a licensed lender, whether they’re private or not, there is an interest rate cap. This cap is hit more often when using alternative lenders, such as non-bank lenders. These were put in place by borrower protection laws and specifically affect bad credit loans. This is the same with a licensed brokerage.
The great thing about private lenders, though, is that they have low origination fees and they provide e-transfer funding. They also fund you faster than banks, so it’s the best way to get a fast cash loan. Your loan approval timeline is only a few hours, not days or weeks.
How to Spot a Loan Scam
If you’re looking for a private loan, whether it’s with a private mortgage broker or just a standard installment loan, it’s important to pay attention to the loan scam signs. Some clues are that they don’t follow the standard loan application process or the provincial lending regulations. Others include:
- Not having a lender’s license
- Asking for money up front
- Having guaranteed approval
- Getting offers through unsolicited messages
- Not being registered with the Financial Services Regulatory Authority
Documents That Private Lenders Require
Whether you’re looking to get a second mortgage, a debt consolidation loan, or even a credit union loan, you’ll need to provide documentation. This includes:
- Government-issued photo ID
- Property details
- Property tax statement
- Current mortgage statement
- Property appraisal
- Proof of income
- Proof of employment
- Proof of Citizenship
- SIN number
The exact documents you need depend on the private amount you’re looking for and the reason for the loan. You also need to consider the specific requirements of the private lender.
If you’re self-employed or have any rental properties, there will be additional information required to demonstrate how you generate your own income and maintain a stable income.
The Maximum You Can Get With a Private Loan
For a subprime borrower on an online lending platform, the maximum amount you can usually get for an unsecured personal loan is $35,000. However, if you’re working with a licensed mortgage broker looking for a private mortgage loan or getting a secured personal loan, then the amounts are going to be higher. That said, no matter what amount you’re looking for, there are:
- Emergency loan options
- Loan for Home Improvements
- Guarantor loan options
- Second mortgage lenders
You can even get credit union personal loans, since credit unions are considered private lenders.
When trying to get a large loan, though, it’s important to check whether there’s an exit plan or strategy—for example, paying it off early with no penalties. You should also pay attention to the fees because lenders with commission-based earners will be more expensive and try to get you to agree to a larger loan
Are Private Lenders Regulated in Canada?
In Canada, private lenders are provincially regulated, so certain things like loan pre-qualification, private loan rates, loan default consequences, and APR disclosure are regulated. Short-term loans, such as payday loans, are regulated separately. The lender regulates the loan repayment schedule and the monthly payment amount. The speed of loan funding is also individual to each lender.
That said, private lenders generally work because their regulations aren’t as strict as those of banks. They offer quick approvals and work with anyone for any reason, not just high-net-worth individuals. They take more risks with their clients so they can lend more money.
If you aren’t sure if a lender is legit, you can always get independent legal advice. If the price seems odd, you can also use a loan comparison tool to estimate the cost.
Getting a Private Loan With No Job
As a borrower, you don’t need a job to get an unsecured loan or a private home loan, but you do need to have an income. This income works in conjunction with credit score requirements that vary based on whether the loan is unsecured or secured.
In Canada, a variety of income sources are approved, such as EI for seasonal workers and collateral on residential properties. For Ontario borrowers, Ontario private lending accepts income from OSAP, ODSP and more.
How Fast is a Private Loan Approval?
Due to lender fees and legal fees, and sometimes even bridge financing, the time of approval for a loan can vary. That said, when you find private lenders to borrow money from, you generally get access to money fast since they’re known for giving quick cash.
Even when you find the right lender, many borrowers like to review the fine print or have a lawyer review the contract. This will tell you whether there are any prepayment penalties if you choose to pay off the loan early with your own money, and what will happen if you, as the borrower, default.
How to Apply with a Private Lender
These days, finding a private lender can be quite easy; the trick is to find the right one. There are plenty of frauds out there, but these lenders also offer different products.
- Do your research. This is the first thing you want to do when looking for a private lender. Take a look at different lenders. See what services they offer and how they can help you with what they need. Take a look at their reviews, see how legitimate they are.
- Check out their rates and requirements. Many companies will give you an idea of their services. You can also speak to representatives to see what the terms of their loans are and what requirements you need to be approved. At this point, you should be aware of the amount you wish to borrow and have an idea of your credit score. This can help you narrow down your decision.
- Apply. Once you have narrowed down your search, you can then pick the lender that you believe best fits your needs and submit an application. You should get a response to your application very quickly after this.
How Can We Help?
At Spring Financial, we offer personal loans that range from $500 to $35,000 with rates starting at just 9.99%. You can fill out our online application in just a few minutes and receive your funds as soon as today. om $500 to $35,000 with rates starting at just 9.99%. You can fill out our online application in just a few minutes and receive your funds as soon as today.
