What is Private Lending?
Unlike traditional lending institutions from big banks, private lending is when individual investors lend out their own capital to potential borrower(s). Private lending usually takes the form of mortgages with real estate or other real assets being the collateral.
Why Private Lending?
When bank says ‘No’, private lending may be an alternative solution.
Individuals may turn to private lending when they find it difficult to receive finance from traditional banks. The reason could vary from bad credit history, to not being able to supply the traditional forms of documentation.
Is Private Lending Regulated?
Yes. All lenders and financial brokers must be licensed by the Australian Securities and Investments Commission (ASIC).
ASIC licenses and regulates banks, private lenders and brokers to ensure they do not lend credit that cannot be paid back.
What can Private Loans be Used For?
In most cases, there are three main types of home loans that private lenders offer:
Bridging loans: Bridging loans are short-term loans that borrowers take out when they want to buy a new home before selling their existing property.
Bad credit loans: Bad credit loans are typically sought out by borrowers who have poor credit history.
Second mortgages: A second mortgage involves taking out a home loan on a property where there is already a mortgage in place.
Pros & Cons
The potential benefits:
- Fast settlements
- A good credit history may not be essential
- Focus more on LVR instead of serviceability.
Possible downsides:
- Higher interest rates and more fees
- Lower LVR
- Shorter loan terms
Disclaimer: The information in this article is general in nature and does not take into account your personal circumstances. Contact your mortgage broker if you have any questions about private lending.
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