How Does Private Lending Work?

Banks can be slow, time-consuming & often say no. But how does private lending work? Let's take a deep dive into private lending & find out!
how does private lending work
Banks can be slow, time-consuming & often say no. But how does private lending work?

There are a number of reasons you may be looking to steer away from a traditional financial institution and looking at borrowing money from a non-traditional, private lender. Banks can be slow, and the process is often very detailed and time-consuming. All this, and there’s no guarantee that you will be lent the money at the end of it. Greater flexibility and quick turnaround times are sending more and more people to private lenders for their loan needs. So how does private lending work?

How Does Private Lending Work?

A private lender is a non-institutional, also known as a non-bank, individual or company that loans money. Generally, these loans are secured by an asset, such as a deed of trust for a house. The relationship between you and the lender is often a much more direct one than that with which you might have with a bank. You will deal with the lender on an individual level, and not through an institution. Private loans generally have shorter periods on them, and the money is usually borrowed for a specific purpose. This purpose could be for a business, personal use, investment, finance settlement and so on.

There are a number of reasons you might be looking into private lending:

  • Processing time: banks and traditional lenders have much stricter measures in place when it comes to taking out a loan. It can take time to fill out your application and have it approved.
  • Banks said ‘no’: you may have tried to take out a traditional loan with the bank and being knocked back in the process. For this reason, you may be looking at a private loan as an alternative.
  • Low credit score: one thing that can prevent you from taking out a traditional loan is a low credit score. If you have a poor credit history, it can be harder to take out a loan. This is because you are considered a risk. A private lender may be more willing to take a chance on you.
private lending

Advantages of Private Lenders

Whether you are looking at taking out a loan for your business, for yourself, or looking at a new investment opportunity, there are a number of advantages that come with using a private lender:

  1. More personal: the private lender gets to know you and your needs and is likely to understand the struggles you are going through and be willing to help. You aren’t a number to them, but rather a person going through something they may have experienced in the past. Therefore, allowing them to empathise with your situation.
  2. More control: traditional lenders often have set ways loans are carried out and paid off with no room for negotiations. Private lenders are usually more open and flexible to changing the loan terms to suit your direct needs. This may involve monthly repayments instead of fortnightly, or a longer loan period to enable you to pay it back on time.
  3. Less rigid criteria: unlike a bank that looks into your credit score, borrowing history and financial situation to determine if you are worth the risk, a private lender is much more open to your situation. Even if your credit rating is low, they are more likely to offer you better terms than a bank would.
  4. Fast process: unlike traditional financial institutions, the application process for a private loan is often much shorter. In addition to this, the process often comes with more relaxed conditions. This means you can have the money in your hands as quickly as possible.
  5. More flexible: private lenders offer a wide range of loan products which aren’t commonly available in banks. These include bad credit loans, no credit check loans and cash advance loans.

Disadvantages of Private Lenders

Of course, private loans do also come with some disadvantages.

  1. More susceptible to a dip in the financial market: recessions and other major financial downfalls have forced some private lenders to withdraw from the market over the years. This is why it is important to look for well established private lenders. Make sure to look around for those who have been around for a long time. Also, try to determine whether they seem large enough to remain strong. The Australian Lending Centre has been around for 30 years and is one of Australia’s leading private lenders!
  2. Interest rates can be higher: while this is not always the case, interest rates from private lenders are generally higher than those of banks. However, these lower rates from banks don’t outweigh the fact that their application process can be complex, slow and often come with little reward.

Knowing the answer to how does private lending work may have you questioning whether it is a safe option.

taking out a private loan

Is Private Lending Safe?

Private loans can carry a level of risk with them. However, it is important to note that both private lending and traditional lending are regulated thoroughly in Australia. It is just different government regulators that oversee them. Private lenders must abide by the Consumer Credit Code, which governs all credit transactions in Australia.

When you select a private lender, you can rest assured that both you and your finances are protected when entering a transaction. It’s normal to feel concerned or sceptical. After all, taking out a loan is a big deal which takes trust! But so long as you understand how does private lending work before entering an agreement, you will be in control.

Taking Out A Private Loan

Are you looking to reap the benefits that come with taking out a private loan? Speak to the team at Australian Lending Centre. We are Australia’s trusted private lender, offering fast and flexible applications, competitive rates and quick turnaround times. You can be told yes and have the money in your pocket as soon as possible. With over 30 years of specialist experience, our experienced team will assist you the entire way and tailor loans to suit you. Let’s talk through your options and find solutions to help you to reach a positive financial position.

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