Typical Mistakes That You Should Watch Out for When Dealing with Private Moneylenders

When you can’t get a loan from a bank, it can be worthwhile to explore the possibilities with a private moneylending firm. Getting a loan from a moneylending firm can be far easier than approaching a bank where everything has to be supported with proper documents that make borrowers with poor credit, a risky property, or even employment issues ineligible. However, some common mistakes that can complicate issues:

Not Getting Your Loan Pre-Approved

If getting a loan is critical to your being able to acquire the desired asset, it is very important that you get your loan pre-approved before you enter into a purchase agreement. Not doing this can expose you to the risk of having to make the payment even though you don’t have the funds. Getting a pre-approval loan ensures complete safety while leaving you free to forego it if you decide against making the purchase for any reason.

Not Knowing the Loan Amount

Not borrowing enough can leave you stranded while borrowing more than you need meansan extra expense that’s completely avoidable. Like bank loans, private moneylender loans too need to be paid back as per a pre-agreed monthly installment schedule. However, if you take a hard money loan, you need to pay only the interest and the principal amount will have to be paid back at one time after the end of the tenor. If you borrow more than you can afford to repay, you may default and the asset may be seized by the moneylender. Be careful when making your estimate as you need to make allowances for unexpected expenses or cost and time overruns that may throw your projections out of gear.

Getting Turned Off by the Interest Rate

Private money lending rates are higher than that of banks simply because of the increased level of risk and the speed of approval that enable you to get going faster. However, hard money loans need only the interest to be paid every month while the original amount can be repaid with the sale proceeds of the asset when it is being liquidated. Alternatively, borrowers can get cheaper bank loans when their financial position is more secure.

Ignoring the Lender’s Reputation and Integrity

Don’t take the loan form the first lender that agrees but take the time to choose a lender whom you can trust to accept a loan that carries a reasonable rate of interest and whose policies are completely transparent. It can help to approach lenders with experience in the sector you are operating in, do not charge upfront fees, offer flexible repayment plans, and in general, are keen to work with you for mutual benefit.


While you may find getting a loan approved by a private moneylender easy and convenient, you should always examine the contract very carefully to ensure that there are no hidden surprises in the fine print. Be sure of all the charges and the terms of repayment so that you are fully prepared.


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