A personal loan is an ideal solution for people who need quick cash to cover expenses due to any number of issues. They can be used for anything from bills or educational costs to major ventures such as home improvement. A personal loan from a private vs public lender poses a unique set of circumstances.
This guide will provide a roadmap to successful completion of the personal loan process under these topics:
A borrower can get a personal loan from public lenders like financial institutions, credit unions or banks. A private lender, however, takes the form of a company or individual rather than an institution. Additionally, public lenders are usually corporate based, with no prior relationship with the borrower; private lender loans are oftentimes awarded based upon some type of relationship with the applicant.
Other differences between public and private lenders are:
Personal loans from a private lender means that a borrower is seeking funding from an individual investor. That means that a private lender is not usually a “company” in the corporate sense of the word. Whether it is money for a personal loan, business loan, or real estate, private lenders are considered a viable alternative to conventional lending.
Private lending sources include:
In most locations private lending is not regulated by the government. Borrowers will run across a wide range of terms depending on the source of the funding of the personal loan. For instance, although colleagues, friends and family members may be willing to offer a loan with merely a “wink and a handshake”, other private lenders may request a note or deed of trust in addition to a clear proposal stating how the lender will get a return on their investment.
Getting a personal loan from a private lender that happens to be a relative or acquaintance can be both a blessing and a curse. Below is the story of a fictional borrower, Mr. Needs Money, who had an urgent financial situation, was short of cash, and had a low credit score somewhere in the 500 range.
One afternoon, Needs checked his mail to find a bill for water service in excess of $1000. Shocked, he called the water company who confirmed that the bill was correct. Upon close inspection, he discovered a leak in the faucet of his seldom used basement bathroom.
After a couple of weeks of personal loan application rejections, Needs turned to his uncle for a loan to cover the bill that was fast becoming due. He was relieved that his uncle agreed to loan him the money, and he paid the water bill on time. Fast forward two months later and Needs and his uncle constantly argue about the repayment of the money and can’t stand the sight of one another. Apparently, his uncle expected to be paid in full within 30 days. Needs had been giving him about 50 dollars each payday.
This example illustrates a common pitfall to getting a personal loan from a private company or individual. Often, the exact terms of a personal loan from a friend or family member are not clear to each party. This can result in a huge miscommunication that may forever ruin relationships or even worse, end in litigation.
Another potential pitfall occurs when borrowers accept terms of a personal loan such as excessive interest or lightning fast repayment terms because they are in dire financial straits. Consumers should shop around for the best terms possible just as with any type of financing. Additionally, many unfortunate borrowers find themselves caught up in worse financial shape from dealing with an unscrupulous private lending company. The Better Business Bureau and other agencies keep track records of businesses available.
As discussed, personal loans from a private company often come with higher interest rates and shorter repayment terms than loans from conventional establishments like banks. However, in the end a personal loan may be the cheaper option than credit cards for people with less than perfect credit. For people who need money in a hurry, the fast turnaround for approval is also incentive to choose a private company.
These are steps to take to get a personal loan approved.
Sometimes there is very little time to prepare ahead of time when a money crisis happens. Even so, borrowers should do their best to avoid committing to a personal loan that will end in an even worse calamity. Fortunately, the Internet makes research and loan application faster and easier each year. For individuals concerned that a low credit score will prevent them from getting a loan quickly if needed, it is easy to prepare in advance by learning the differences between lenders and browsing the websites of new and established lenders far ahead of any sudden financial storm that may happen in the future.