Guide to Getting a Personal Loan from a Private Company

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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:

  1. Differences Between Public and Private Lenders
  2. Where to Find a Private Lender
  3. Beware of Private Lender Personal Loan Pitfalls
  4. The Path to Approval

 

Differences Between Public and Private Lenders

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:

  1. The purpose of the personal loan must be specified with public lenders; private loan applications do not generally have to state the reason the money is needed.
  2. Public loans offer lower interest rates; the interest rates tend to be higher with most private loans, especially since personal loans are unsecured by collateral.
  3. Private loans move more quickly in terms of approval and processing time; personal loans from public lenders often take more time, requiring more documentation and verification.
  4. Traditional public lenders are obligated to their depositors and therefore grant approval based upon strict lending practices including credit ratings. Since private lenders are not committed to depositors, they are more likely to grant a loan to a person with a low credit score.
  5. On average, personal loans terms include a shorter repayment time; public lenders give borrowers more time to pay back the loan.

 

Where to Find a Private Lender

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:

  1. Friends or family members
  2. Individual investors willing to put up capital for the borrower’s venture
  3. Private lenders can be found on social media platforms like LinkedIn
  4. Borrowers can apply for personal loans on numerous private lending business websites
  5. Crowd funding or peer-to-peer lending

 

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.

 

Beware of Private Lender Personal Loan Pitfalls

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.

 

The Path to Approval

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.

  1. Carefully consider if a personal loan from a private company is actually necessary. Some borrowers find that they are able to get less expensive financing from a traditional lender, even with low credit scores.
  2. In financial emergencies, the borrower should look for someone familiar if they believe that will work for their situation. Sometimes a close friend or family member will trust a borrower enough to offer more lenient repayment for less (or no) interest than a private company. Again, make sure all terms are clearly understood by both parties and put them in writing.
  3. Shop around for the best rates and terms from private lending companies. Some larger private lending companies let people get an idea of what they qualify for before they apply by doing a soft pull from their credit report, which does not affect their score.
  4. Before choosing a company, it is wise to research its history with other customers by looking up their rating with regulating agencies and searching for any negative comments or reviews online.
  5. Consumers should leave nothing to chance when it comes to understanding what the lender expects. They should read the fine print and pose all questions prior to accepting the loan offer.
  6. A borrower should gather documentation for a personal loan from a private company just as with a traditional lender. Most private lenders will ask for documentation like proof of income, monthly bills, assets and liabilities.

 

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.

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