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Private Loans 101

Getting financed privately can be a godsend to someone who knows what they're getting into (and has a clear, attainable exit plan) - but they can also be a recipe for disaster if the borrower doesn't clearly understand the nature of private lending, because the high interest, fees and in general the high cost of capital can easily sink an ill-prepared borrower...

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A private loan is money that is received by a borrower from a private (or independant) lender with a fixed interest rate and a maturity date. The terms of a private loan are typically negotiated between the borrower and lender and are typically specific to the situation. Private loans are taken out for a variety of reasons, such as the following:

Paying for an education. Some students find it challenging to meet all of their educational expenses and require some economic assistance in order to do so, in these circumstances they rely upon student loans. The private student loan generally carries both an interest & repayment relief period during the course of their studies. Once they have completed their studies however monthly installments commence in order to pay off the debt in full. The key thing to keep in mind when it comes to student loans is to ensure that you’re going into debt for a career that there is a demand for, it’s fine to by interested in Phoenician history but going tens of thousands of dollars to do so may not be the smartest idea.

Assisting a small business. There are several financial service companies that offer their clients different types of small business loan meeting specific business needs. These needs can range from business expansion to equipment upgrades. There are also lenders out there who work with specific niche groups, there are some who look more favourly upon women while others may deal more with new start up’s, there are some who prefer lending on receivables or new contracts. The key to getting money if you’re a small business is that your overall business application and plan has to be convincing enough for the lender to buy in.

Bridging the financial gap during an emergency. There are simply times in life when, (excuse my language) but “shit” happens. During these times of crisis there is just no way out without getting a private loan in order to get through things. Your needs during this time may be small enough whereby a “payday” loan may be all this is required or may be large enough where an unsecured private loan through either a lender is needed.

Paying off a higher interest rate loan. Another time that a private loan can come in handy is for when you need to pay of an existing higher interest rate loan. You may have entered into the original bad credit loan because at the time your credit qualified you for nothing better, but now your credit has improved considerably and you’re tired of paying the high interest rate.

Debt consolidation. Private loans are also taken out for debt consolidation; these are taken out by folks with both good & bad credit. Sometimes good folks just find themselves in bad situations where there debts haven gotten out of control and unmanageable and they need to get a consolidation to get a handle on things.

Credit Rebuilding. Sometimes private loans are used by folks with little or no credit or ones whose credit may have been shot in the past in order to rebuild it. Not all lenders offer credit rebuilding programs, but the lenders who do are generally well versed in them.

Here a few things to keep in mind when it comes to private loans:

Make sure you can make the payments, I know this sounds logical but you would be amazed at the number of folks who take these loans out without being 100% sure they can repay them in a timely manner

Make sure they are short term solutions to short term problems, especially ones that may be at higher rates due to poor credit and consolidations.

Ensure you shop around, not all private loan lenders offer the same rates and terms. Keep in mind however that rates and terms will differ due to your credit rating and overall situation, if you have a D- credit rating you can’t expect to get A+ terms and rates, conversely someone with A+ credit should not be paying D- rates.

Make sure you fully understand what you’re signing prior to ever putting your John or Jane Henry on the line. If you’re unclear as to some of the terms don’t be afraid to ask the lender to explain it to you until you’re fully satisfied. Also don’t hesitate to run it by a friend, family member and or professional.

Get a copy of your credit bureau in advance. You need to know the “good, the bad and the ugly stuff” before approaching any private lender but most importantly you need to ensure it’s accurate and up to date. Simply doing this in advance will save you both time and money in the long run.

Lenders offer both secured and unsecured private loans, unsecured private loans have more risk due to the fact there is no underlying asset securing the loan so don’t be surprised by higher rates for them.

At the end of the day by doing your homework and getting the right private loan that meets your needs can be a lifesaver, but rushing in with little thought can turn it into an anchor, the choice is yours!

About the Author:

Kam Brar is a licensed mortgage broker and has been directly involved in the lending industry over the past 10 years, bringing with him a wealth of knowledge and experience. His particular specialty throughout his career has been working with "challenge" customers, where it takes creative financing (and sometimes private loans) to accomplish their goals.

His role with ShangriLoan is that of a consultant and mortgage industry liaison.


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