Whenever Aussies need a loan to finance a new car or house they go to the bank. Still, they seem to forget that there are also alternative sources of financing in the form of private lending. But what are private lenders and why should someone consider these alternative sources of financing when there are plenty of banks?
Sometimes, traditional banks don’t always approve your loan application due to many different reasons, so people have to look for alternative sources. With a private lender, maybe you will finally get that new car you have always wanted.
What Are Private Lenders?
They can be either an organisation or a private individual. Unlike traditional funding sources, like banks, private lenders don’t have traditional qualifying systems, meaning that getting access to a loan is much easier.
However, because of its “different” nature of funding, lenders come with higher risks for both the borrower and the lender.
What Are the Benefits?
To begin with, private lenders can easily approve your request for a loan. In other words, if you have bad credit or are self-employed or cannot provide proof of your income, a private lender may be more accessible when it comes to requirements. So, no matter your income and your credit score, a private lender will get you the loan you need.
Another reason for applying for private funding is due to the straightforward process they have. Unlike traditional lenders, the private ones will accept your request very fast. Not only that, but your loan could be available right after your application is approved. This can bring a lot of advantages if you are on a tight schedule.
Drawbacks of Using Private Lenders
It almost sounds too good to be true, but private lenders do come with a set of drawbacks that can make them inaccessible to some Aussies.
The first thing to know is that their rates are typically higher than those of traditional lenders. This is how they compensate for the increased risk and they will have high interest rates for those with bad credit.
Some lenders may feature high fees, from the start until the finish of the loan term. In any case, be sure that you know what you are paying for.
Another drawback is that some loans are offered for shorter terms in comparison to what traditional lenders offer. This happens especially when it comes to mortgages. When conventional mortgages have a twenty-five to thirty year terms, private lenders offer smaller mortgages that just fill the gap until securing more traditional finance.
The private mortgages can also be used to cover needs like the construction of a house. They can also cover for the period between purchasing a house and selling one. The term on these mortgages is one or two years, which means that you will have to move fast to pay the loan back.
Another thing you should know about private lenders and their services is that some of them do not offer the same features as traditional lenders do. In other words, some loans may lack features such as redraw facilities or offset accounts. So, if you were hoping for these types of features, you might have a problem.
How Can Private Lenders Help Me?
Private lenders can offer you a lot of options when it comes to loans. Here are a couple of them:
- Caveat loans are fast-settling loans secured against a property. These loans are short, last sixty to ninety days and settle very quickly.
- Bad credit loans are the ones you need if you have a low credit score. Be careful though; these loans come with high interest rates, so use the money wisely and make sure you pay back the loan fast.
- Bridging loans can be offered by private lenders and can be used by the customer to build or purchase a new home before the sale of their old home. These loans have a term of twelve months, and they are paid back when the old property is sold, making them quite useful in the long run.
- Second mortgages are also offered by private lenders. These loans are available for those who already have a mortgage on a property who are in need of extra funds for multiple reasons. Depending on the lender and the loan terms, these loans could have high interest rates and extra fees. With all these factors in mind, any client should think twice before applying for this kind of service. So be very careful if you do.
Private lenders are here to stay, whether you like it or not. They have a lot of advantages in comparison to traditional lending systems, but they also have some drawbacks. At Australian Lending Centre, we offer second mortgages at competitive rates and flexible repayment terms that can be catered to your specific needs. Contact us today for a free assessment via our enquiry form now!