Private lenders in Canada serve as vehicles to individuals looking for loans without passing through traditional lenders’ lengthy and strict approval processes.
If you’re one of them, your search for finding the best private mortgage lender in Canada ends here.
While private lenders Canada are the perfect alternatives to traditional lenders, there are many things you need to know to avoid costly mistakes in the long run.
This post covers everything you need to know about private lenders in Canada and how to make the best decision.
Before then, let’s have an overview of what a private lender entails.
What is a Private Lender?
As the name implies, a private lender refers to a person or organization that offers loans independent of any financial institution.
In other words, a private lender is a type of lender that is not associated with any financial institution such as a bank or credit union.
Because private lenders are not subject to any regulations, they have the flexibility of approving loans that traditional lenders couldn’t.
Whether as an individual, a group or a company, a private lender offers similar loans traditional lenders offer.
However, due to the high risk they take, private lenders protect themselves with higher interest rates fees.
As you continue reading, you will learn more about private lenders in Canada.
How Do Private Lenders Work?
Private lenders work similarly to traditional lenders. As a result, you are expected to apply, wait for approval, and receive your loans if you meet the qualifications.
Depending on your needs, you can use the loan to buy a home, improve your existing home, fund your children’s education etc. You will be required to make installment payments with interest.
Thus, regardless of the purpose of your loan application with a private lender, the application process is similar to a traditional lender, only that it is much faster and easier.
What Types of Loans do Private Lenders Offer?
As mentioned previously, private lenders have the flexibility of offering loans that traditional lenders couldn’t. In addition to the other popular loans in Canada, private lenders offer the following loans:
- Student loans
- Auto loans
- Bad credit loans
- Personal installment loans
However, each private lender has different terms and conditions, covering its offers and rates.
Moreover, even if you have a unique need, a private lender can offer a customized solution than a traditional lender.
Advantages of Private Lenders Canada
1. Quick Access
Private loans are quick to access compared to the long process of obtaining a traditional loan.
That said, the reason for your loan and the amount you want to borrow will determine the duration of your application process.
Furthermore, the funds can be received within a week or two after you have been approved within a few minutes.
Overall, the approval and funding process with a private lender is fast, despite the amount of paperwork you need to fill.
2. Customized Solutions
Private lenders provide customized solutions than traditional lenders. This is because each individual condition determines the monthly installment payments and interest rate.
3. Purchase and Renovation Loans
Unlike banks that provide loans only for properties in good condition, private lenders offer loans to purchase new properties and renovate old ones.
4. Bad Credit Score Approval
Unlike most traditional lenders, a private lender can approve your loan even with a bad credit score.
Disadvantages of Private Lenders Canada
1. Higher Interest Rates
Traditional lenders’ low mortgage rates are one of the factors that keep the Canadian housing market stable.
However, private lenders charge high-interest rates compared to traditional lenders. This is because they exposed themselves to more risk by approving loans that traditional lenders couldn’t offer.
2. Higher Costs
Due to their high-interest rates and fees, private lenders cost higher than traditional lenders. So if you don’t have a stable means of income, you will end up ruining your financial security in the long run.
3. Short Payback Period
Unlike traditional lenders that have long payback periods, private lenders have short payback periods. For example, the following loans can have a payback period of:
- Small cash loans – 3 months
- Private mortgage loans – 1 -3 years.
Thus, if you’re not financially stable and have a consistent repayment plan, you may land in big trouble because of the short payback period.
What is the Difference Between a Private Lender and a Bank?
The major difference between a private lender and a bank is that a private lender is more flexible but expensive than a bank.
Thus, a private lender can approve loans for individuals with bad credit scores but with higher interest rates and fees.
That said, banks have strict approval processes and take longer to approve a loan. Private lenders have flexible processes that are tailored to each individual, hence approving and administering loans quickly.
However, depending on your situation, you may need a bank loan instead of a private loan. But you should always bear in mind that the requirements differ.
If you need an urgent fund to buy a home, renovate a home, or meet any need, a private lender may be the best option for you.
But if you don’t have an urgent need, you may stick to a traditional lender for a low-interest rate and fees.
What Qualifies to Use a Private Lender?
Private lenders are available for all, but not everyone can take a loan from a private lender.
To qualify for a private loan, you must meet the following requirements:
- Be 18 years or older
- Have a good debt-to-income ratio
- Have a stable means income
However, different private lenders have different requirements. So you should compare different private lenders to find the one with the favourable terms and conditions.
Private Lender Canada Fees
Private lenders are free to set their fees because they are not regulated in Canada.
While private lenders have higher fees compared to traditional lenders, they have varying fees. Thus, some private lenders have competitive fees than others.
Furthermore, some private lenders have high-interest rates with no fees, while others have lower interest rates and low fees but higher annual rates.
So it’s essential to consider the interest rate and the annual rate of the private lender before applying for a loan.
Some of the fees of private lenders include brokerage fees, private lending fees and legal and appraisal fees. Other private lenders charge administration and set-up fees.
Moreover, your location and property type can determine your overall fees.
When is it the Right Time to Choose a Private Loan?
It may be confusing to know when to choose a private loan over a traditional loan. This is natural considering the easy access and flexibility of private lenders compared to conventional lenders’ lengthy processes and strict rules.
However, when it comes to making a cost-effective decision, you shouldn’t rush into taking a private loan in Canada.
Based on my personal experience and what I have seen work for others, private loans are only suitable when you have:
1. Urgent Need
Since no organization regulates them, private lenders can offer quick loans than traditional lenders. Not only can you submit your application within a few minutes, but you will have your loan deposited within a week.
2. Bad Credit
Unlike traditional lenders, private lenders offer loans to individuals with bad credit scores. This means breaking the barrier between your bad credit score and your dreams.
3. No other Option
If you have tried borrowing from traditional lenders but failed, a private lender could be your last option. Although the interest rate and fees may be high, a private lender is willing to offer a loan regardless of your situation or credit score.
How to Find the Best Private Lender in Canada
Depending on your location, there may be multiple private lenders in your area, making it difficult to choose the right one.
However, choosing the best private lender in Canada should be the least of your problems.
Before looking for the best private lender in Canada, it’s essential to understand your needs and circumstances.
Since different private lenders specialize in different areas, you should consider a lender that can understand your situation to offer a customized solution.
To this end, you should compare different private lenders to see the one that has the best offers. You can easily achieve this by researching and reading the reviews of your potential lender.
That said, you should focus on the following factors when looking for the best private lender in Canada:
- Term and conditions
By doing so, you can determine whether your potential lender is worthy of your application.
However, it may still be tricky to decide after considering the above factors.
Some fake and scam lenders out there disguise themselves as one of the best private lenders. If you’re not careful, you may fall for these scammers, risking your money and personal information.
Here are some of the signs of fake and scam private lenders:
- Rushing the application process without reading details
- Guaranteeing your loan approval from the onset
- Charging upfront payment as “loan insurance”
- Demanding extremely higher interest rates
Once you notice any of the above red flags, you should run for your dear life.
However, you can avoid all the stress with the help of a licensed and experienced REALTOR ® such as the Ken Morris Team. An Experienced REALTOR ® can help you choose a legit private lender that suits your needs and financial situation.
Best Private Mortgage Lenders in Canada
Here are some of the best private mortgage lenders in Canada as of the time of writing this post:
|Private Mortgage Lender||Interest Rate||Areas Covered|
|Alpine Credits||5.75% – 17.2%||Alberta, British Columbia, and Ontario|
|Private Lender Inc.||4.99%+||All provinces|
|Prudent Financial Services||5.75% – 9.9%||Ontario|
|Calvert Home Mortgage Investment Corporation||7.9% – 15.50%||Alberta, Ontario|
|Trillium Mortgage||5.99% – 14.99%||Ontario|
|Canada Lend||5.99%+ (2nd Mortgage)||Ontario|
|Guardian Financing||9% – 15%||Montreal|
|Cliffton Capital Corporation||Variable||Québec|
|Sun Mortgages||Variable||Manitoba and Saskatchewan|
How Do You Borrow Money From a Private Lender?
Once you identify the private lender that suits your need, the next step is to submit an application, wait for approval, and receive your loans if you meet the qualifications.
After your loan has been disbursed, you will be required to make monthly installment payments with interest.
Thus, the process of borrowing money from a private lender is the same as the process of traditional lenders. The only difference is that private lenders have an easier and faster application process.
Verdict on the Best Private Mortgage Lenders in Canada
Private lenders are expensive alternatives to traditional lenders in Canada. If you have a bad credit score or need urgent loan approval, a private lender could be what you need.
However, high-interest rates and fees of private lenders could jeopardize your future financial security if you received a private loan without preparing for it.
To avoid costly mistakes, you should apply for a private loan only when you have an urgent need, a bad credit score or no other option. More so, ensure that you have a stable means of income to keep up with your loan repayment.
But if you’re still in doubt on whether to use a private lender or not, don’t hesitate to contact the Ken Morris Team for help.
Contact us at (403) 804 7314 or email us at KenMorris@royalLepage.ca for a personalized solution.
FAQs on Private Mortgage Lenders Canada
Are Private Lenders Good?
Private lenders are good for individuals looking for quick loans without passing through a strict approval process. However, private lenders have higher interest rates and fees than traditional lenders.
Is Private Money Lending Legal?
Yes. Private money lending is legal because it’s subject to both federal and provincial laws. However, private lenders are not subject to any regulations, unlike traditional lenders.
How Much Do Private Money Lenders Charge?
It depends on the private lender and the amount you want to borrow. On average, private money lenders charge 6% – 15% interest rates compared to banks’ average interest rate of 1.5% – 5.2%. Overall, private lenders charge higher interest rates and fees than traditional lenders.
Is it Better to Go With a Private Lender or Bank for Mortgage?
If you need your mortgage urgently or have a bad credit score, a private lender could be your best option. But if you’re not in a hurry and have a good credit score, it’s better to go with a bank for a mortgage.
This is because private lenders are flexible but expensive, while traditional lenders are strict but less expensive.