Private Money Loans Have a Unique Set of Benefits

As with any kind of loan, your eligibility for a loan from a private money lender is determined by a number of factors including your credit score, income or assets. The difference with private money lenders is that because they do not have to work under the stipulations of the bank or lending institution they are sometimes have a broader allowance of what they are willing to deal with or accept. This allows for people who might not otherwise be eligible for a home loan or any other kind of loan to be able to get one. Of course there is a bit of a catch. Lenders who give to people with bad credit or not many assets will often ask for tighter regulations or in many cases, a higher interest rate in order to make up for the added risk that they are taking by giving the borrower the loan. This is where the lender and borrower can negotiate in order to find a middle ground that seems beneficial to both parties.

Similar to bank loans, private money loans can be for a wide variety of amounts but generally will not cover the entirety of a large purchase. Home purchases are one of the most common uses of private money loans and normally allow for between sixty-five and seventy-five percent of the total cost of the home to be covered by the loan. The particulars are of course dependent on the lender and what conditions and amounts they are comfortable with. Many times the lender will try and cover a lower percent of the purchase if possible because it provides them more security if the borrower defaults on the loan. In that case the lender is able to either take the home or find another means by which they can collect the remaining sum of the loan. If the private money lender loans out too much money to a borrower and they do not pay, the lender might have a hard time finding a way to get the money back in some of the more difficult situations.

Another difference with private money lenders compared to other kinds of bank loans is that normally loans given by private individuals are for a shorter time span than bank loans. The private individual does not normally want to wait twenty or thirty years to get the entirety of their money. A bank can probably wait that out but it is fairly impractical for a private money lender. For this reason most of the loans given by private individuals have a shorter duration, normally between a few months and a few years. If the borrower wants to get a loan for longer after they get the private money loan, it is usually easier for them to get a loan from a bank since they have slightly better credit from paying off the private money loan. This is not always the case but it does happen frequently enough that these loans have become known as bridge loans because they bridge the time between when a person needs money and when they are able to get a bank loan.

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