Private Lenders for Personal Loans Canada

Loans can be a difficult thing to deal with, especially when you’re unaware of the processes and different types of loans. It could be embarrassing to go to a bank and ask if you’re eligible. Some people don’t even have an idea as to what their credit standing is. This can lead to you making bad decisions that harmfully affect your credit rating in the long run. Loans that most people are familiar with come in the form of credit cards & bank loans. However, just because they’re the most popular does not mean it’s the best option. In fact, many people pay higher interest in shorter amounts of time when they use their credit cards. An alternative option would be private lenders for personal loans in Canada.

Private lenders are companies, or individual investors, that provide short-term personal loans. They cater to people whose credit rating does not qualify to the standards of conventional lenders. Borrowers who can’t qualify for bank loans often turn to private lenders for personal loans in Canada to cover their urgent financial needs.

It is important to do your homework before considering a private lender for a personal loan. Furthermore, considering a peer to peer lender is another type of private loan. Here is a great video we found that talks about peer to peer lending:

Bad Credit Personal Loans From A Private Lender

Another way of acquiring a loan is applying at a bank. Because these are reputable institutions, borrowers have a better sense of security. However, they also have stringent processes. You will not be able to get a loan if you have a bad credit rating. One method that works around this is by applying for personal loans from bad credit private lenders in Canada. Surprisingly, less than one third of families in Canada are actually debt free:

Private lending is ideal for those who are looking for quick fixes to their financial problems. If you have an emergency, want to buy a car, or want to renovate parts of your home, private lenders can provide you solutions without having to go through the hassle of applying in banks. However, it’s also very risky to loan from private lenders because they’re dependent on the stability of the economy. Unlike banks, private lenders will be in danger if the economy declines. On the upside, at least the option does exist for customers with bad credit.

Advantages of Private Lenders for Personal Loans

Private money lenders are incredibly attractive to the masses because they offer easy access to funds. By simplifying their loan application process, people can easily get a loan.

Private money lenders require fewer financial documents compared to banks and are more relaxed with their conditions when it comes to loan approval. When you apply for a personal loan with a private lending company, you’ll be asked to submit only a valid ID or two, proof of billing, and proof of income such as, latest pay slips or income tax return.

A borrower’s credit history and credit score are a big deal with banks. With private lenders, this isn’t the case. Loan decisions are not based on a borrower’s credit standing. Instead, they assess the borrower’s capability to repay a loan through the submitted documents.

Because of this, personal loans from private lenders are incredibly appealing to borrowers with a poor credit score or no credit history. Those with unstable income enjoy the benefits of private lending as well.

You don’t need to wait for weeks and months to approve your personal loan. Online lenders decide can even decide in a span of 24 hours from the time of application. Although there are some lenders take two to three days to process a loan, it’s still a much faster turnaround time compared to banks. Conventional banks take longer to approve a loan because they need to spend time verifying data, investigating credit standings, and conducting background checks.

Private lending companies can also release your funds within the day of application or approval.

Disadvantages of Private Lenders

Even with all these benefits, there are some risks as well. It’s important to do your research before making any agreements with a private lender.

Private loans are notorious because of their high monthly interest rates. With higher rates, the cost of borrowing becomes more expensive. Personal loans from banks usually have much lower monthly interest rates. But, the numbers can vary.

The reason why private lenders have such a higher interest rate compared to banks is because private lenders have a higher cost of acquiring funds. They’re lending to borrowers with high credit risk which means they need to have some form of a safety net.

Private lenders get the funds they loan to borrowers either from private investors who are earning profits from their investments or from banks that lend money at higher rates. This means that the amount that they need to repay to those investors is higher. They pass on this higher cost to borrowers through high interest rates so that they can pay back the initial investors.

Lenders like these also carry a high risk of lending money to borrowers with a bad credit score or no credit history. The likelihood that these kinds of borrowers will repay their loans is lesser compared to those with a good credit score. Private lenders compensate for this high credit risk by charging higher interest rates so that they don’t lose money in the process.

Most private lending companies expect borrowers to repay their personal loans within a very short period, ranging from two to 18 months.

Combined with a high monthly interest, a short loan term can lead to a high monthly payment. If your budget is less, repaying a private loan monthly can be very difficult. In contrast, banks offer a longer time for you to repay your personal loans. This means you can manage your finances more.

There are also private lenders who ask borrowers to declare property as collateral for their loans such as a house, lot, or car so that they can  raise their chances of getting approved for a personal loan. Although you secured an easy loan with your collateral, failing to pay would mean losing that asset and letting it be taken away by the private lenders.

There are a lot of fake private lenders that rip off borrowers through online lending scams. They promote their loans on Facebook, Twitter, and other social media sites. These scammers pretend to be legitimate private lending companies. They trick people into providing their personal information and paying a processing fee before releasing the loan proceeds. Not only does this make borrowers susceptible to identity-theft, but it also puts them at greater risk. After victims have deposited the payment for the processing fee,the fake lending companies block them on social media. So that they don’t get caught, these scammers often delete negative reviews about them or even end up deleting their social media.

Looking at major cities across Canada, we can see in the chart below that there is a discrepancy in average household income to household debt ratio across the country. When considering to take out a loan, think about how it will affect your total household debt. Depending on the city you live in, you may want to re-consider how much you can affordably borrow. This is especially true if you are considering a loan from a private lender in Canada. Here is some of the data from that chart:

Debt-To-Income Ratios Canada

Source: Survey of Financial Security 2016

How Your Credit Factors In

It can be very difficult to take out a loan if your credit standing is shaky, or if you have no previous credit standing whatsoever. Your credit standing is basically your reputation for paying back loans. Good standing means you pay your loans regularly and on time. Missing payments or even evading them can impact your standing negatively.

In order for you to get loans from banks, you must have good credit standing. Banks will check how often you paid back your previous loans and will then assess if your credit standing is good. This is a tedious process, especially for those who need money immediately. Having to go through longer processing can be stressful, especially if you need funds immediately.

When getting a personal loan from private lenders, they don’t usually check your credit standing. This is a double-edged sword for some people. On one hand, it’s incredibly quick and easy. On the other, you’re putting your property at risk because you would need to use it as collateral. Although you would have nothing to worry about if you pay regularly and on-time, it’s still something worth considering.

Your credit standing determines a lot of things that you can do in life. If you want to take out a loan for a car, for your mortgage, or even just a personal loan, a good credit standing is needed. However, this isn’t as easy to do for those who have no credit history at all. Lending from private companies can help you build your credit standing as long as you’re able to pay them on time.

Conclusion About Private Lenders for Personal Loans in Canada

There are advantages and disadvantages when taking out a loan with private lenders. Before you even consider approaching a lending facility, make sure that you know their reputation first. Apart from giving them your information, there are also companies out there that cannot be trusted.

Given all this information, would you still get a personal loan from a private lender? If you’re in a situation where you need a large sum of money immediately, private lenders can surely help. Trustworthy private lenders exist and they are more than capable of handling your finances.

However, if you don’t mind spending a bit of time with processes and you believe your credit standing is good enough, consider going the conventional route. Not only are you able to save a few bucks with the lower interest rates, you’ll also feel a bit more secure knowing your information is in good hands.