Pros And Cons Of Private Lenders For Personal Loans
Personal loans can be defined in a variety of different ways. Primarily, they are loans that are not aimed at purchasing a specific asset such as property or a vehicle and can in effect be used for anything or simply to provide cash in hand.
Personal loans are available through regular banking and other financial channels but the approval process can be rigorous meaning that it may difficult to obtain a personal loan from these types of loan providers. Private lenders for personal loans in Canada are therefore an option for those who cannot meet with the strict criteria provided by regular loan providers.
For example, those who are self-employed and cannot provide a salary slip as proof of income or the required employer information may benefit from applying through a private lender. Individuals who do not have the ideal credit record may also find it easier to have a personal loan approved through private channels.
Personal loans are often in small amounts and have shorter repayment periods. The loan amount is mainly dependent on individual factors such as how much a person can afford to repay as well as their income. Private lenders may not apply this criteria and may therefore offer higher loan amounts regardless of affordability or income, within limits.
However, this can be considered to be a disadvantage as people often opt for loan amounts that they cannot afford to repay resulting in blacklisting and other penalties. Private lenders for personal loans may also attach personal belongings in order to recover the loan amount, plus interest and additional charges, in the event of late or non-payment of the loan.
Due to the higher risk associated with personal loans, regular loan providers may require some sort of security normally in the form of collateral or cosignatory on the loan in order for the loan to be approved. Private lenders more often than not do not require this type of security.
It is also necessary to take the interest rate as well as additional charges into account when weighing up the pros and cons of using private lenders. Personal loans are notorious for having higher interest rates than other types of finance options. Interest rates can be even higher from a private lender. They may also apply additional charges such as admin and service fees.
On the other hand, loans from friends or family members can also be considered to be private loans and these often come without any interest or additional charges.
It is highly recommended to first weigh up the pros and cons of the different loan types from regular financial providers in relation to a personal loan. Secondly, compare interest rates, charges and other factors between private lenders and traditional loan providers. Lastly, compare the terms and conditions from different private lenders in order to get the best deal.
Most importantly, always ensure that the repayment schedule is affordable after taking into account the interest rate and other charges.