November 30, 2023

Private Money Lenders

When you need liquidity and you don’t have it, you go to the bank. There are times, however, when the bank’s risk department may refuse the loan. In these cases there are two alternatives. Either to resign ourselves and give up what we wanted or to turn to private lenders.

This second option is a quick solution to the problem, but to what extent is it a good option, what do these private lenders do, are they reliable, how much can they finance and what are their interests? In today’s blog we will answer all these questions.

Who are private money lenders

Private moneylenders are private companies or individuals who can lend part of their money as if they were a financial institution. On paper there is no problem. Someone gives you money and you agree to pay them back later. Their barriers to entry are not as high as a bank’s and they can cover an underserved market.

Like the bank, they study the customer profile and the reason for the loan. However, they are operations that lack transparency. Customer service is poor and the morality of the business can, in some cases, be called into question.

Advantages and disadvantages of using private lenders

If there is one thing private lenders survive for, it is their admission policy. Most of their clients are people who for some reason have not been able to get a loan or mortgage. Profiles that are on delinquency lists or people who are largely over-indebted. But also people without recurring income such as a salary. No matter how much they are able to pay, the bank will never lend them money. And where the bank does not reach, private lenders such as those from do.

There are other profiles such as those who need immediate liquidity knowing that they will be able to pay it all back in a short time. It could be the case of someone who is waiting to inherit an apartment. It may happen that the person does not have enough money to pay the inheritance tax. In these cases, although the loans are at a higher interest rate, it is not too much of a burden.

Once you manage to sell the inherited apartment, you will be able to amortize quickly and forget about the loan. However, for the most needy profiles, the interest rates and the abusive conditions of some loans can aggravate the problem even more.

What kind of loans they make

Private lenders make all types of loans. The most common is to give microcredits. Although, in case of having a mortgage guarantee they can finance much more money. Up to 300.000€ without asking too many questions. Of course, the customer incurs the risk of losing his house if he cannot meet the payments.

In fact, it is even possible to ask for a mortgage loan. It is calculated, however, that adding the opening commission plus a nominal interest of more than 8%, the mortgage can cost you 21% APR or more.