The good, the bad & the ugly with small lenders
When it comes to smaller private lenders, what do we actually know about them?
Choosing the most suitable lender to meet your financial needs isn’t always as simple a task as it may seem. Everyone that lends you money is in it to make money, so can you really be sure that you’re getting the best rates, the best terms, the highest reliability and the service you deserve?
Is my lender registered?
There are websites that will assist you in answering these questions and ensuring a lender you're looking at is registered. You don’t want to get a loan with just any shady, unregistered lender, so best you do your homework before committing.
Responsible lending organisations are always the right way to go. Not only do you have access to a bouquet of financial offers, but they remain transparent in all dealings with their clients and maintain reputable services as their name in the business is what brings about more business!
Be aware of false advertising
Don’t take everything at face value where unregistered lenders are concerned. They’re aware of their own shortcomings and mask these by advertising, strategic marketing campaigns that illustrate the best rates, meanwhile, all the other vital info you’d require is left out!
Aussies have a habit of buying into these campaigns and seeing the advertised rates as the most important factor when choosing a loan. This is rarely, if ever, the case as rates are usually tailored to the individual credit history of the borrower. Be sure that all your needs are being met, it will go a long way financially in the end.
Registered vs unregistered lenders
While we’re discussing what’s best and what isn’t, let’s take a look at some of the direct comparisons, as far as advantages and disadvantages go, between smaller and unregistered lenders and banking institutions.
Small or unregistered lenders
What shape and form do unregistered lenders come in, and how will I as a consumer be able to spot one? First and foremost, they don’t possess a banking license, however, they should still abide by the same regulations. So, if you request this and they’re unable to produce it, that’s your first telltale.
This is an easy business to get into, ergo there are plenty small lenders playing in this space. Don’t make any decision lightly, make sure that all your needs are met and this is just a rule of thumb, whether it be a small private lender or large banks.
Private lender pros
- Mostly you will receive extremely competitive rates
- Convenient loan offers are more common with private lenders
- Typically, they offer cheaper setup costs for the loan
- Lending criteria aren’t as rigid as with the banks, i.e. credit scores are not held against you and bad credit loans are common
- Being private means offering flexibility by prioritising your specific requirements
- They offer personalised customer support while delivering a sizeable and niche variety of loan offers
Private lender cons
As with everything, there are always the cons that come with the pros. One is that private lenders tend to exude vulnerability in economic conditions, such as when the Global Financial Crisis hit us, a plethora of lenders pulled out of the financial market.
Another known disadvantage is that some, not all private lenders offer limited services. This is mainly due to their operations not being as established as banks and therefore not having the resources to offer much. That will differ from lender to lender, however, it’s not a hard and fast rule.
Are small privately owned lenders reliable?
Just because they aren’t checking your credit history before approving a loan application, doesn’t make them unreliable. If anything, this is a risk that they take on and a pro for you, since you may have a poor credit record. The reason that you can trust your private lender is that as with banks, they, too, are obligated to abide by the official laws and regulations of the Consumer Credit Code, which governs the credit transactions that take place in Australia.
What this code aims to provide is protection for you against any negligence that may be conducted by any banks, private lenders, credit unions, finance companies, and businesses. It ensures obligation to communicate both your rights and responsibilities when you take out any type of personal loan with them.
All lenders are required to be transparent
In addition to this, whoever furnishes you with the loan has to maintain full transparency and disclose any information deemed relevant pertaining to your agreement. This should show in a detailed, written contract. Said contract should state any and all information pertaining to fees, commissions, interest rates, and other that could have previously been omitted.
Not only are they obliged to do so, but the Australian Securities and Investment Commission require lenders to be transparent with their rates and fees.
So what do we think about small privately owned lenders?
From what we’ve portrayed here in relation to opting for a private lender over a bank, you’ll deduce that it comes with its advantages and disadvantages. Now that you’re equipped with all the information you need, you can confidently go ahead and make an informed decision.
When making a decision such as this, don’t forget the people in your life. Referrals and advice from those you know and love are often the first ones to turn to in aiding your decision. But with that can come with a lot of bias on who has approved a loan form them or not int he past and mixed opinions, so once again, remember to do your homework.
Still unsure what to do? Well, contact a company that you know will give sound advice when it comes to loans or make use of one of many loan comparison sites. These sites only include legally owned and operated lenders and can help you find the best rates and terms on the market.