Money Lenders

Money Lenders

Moneylenders

Introduction

There are different methods and techniques or even people where one can lend money from. The need for credit is very essential for any economy to thrive. Without credit generation, no institution can operate. Whether a conglomerate or a small-time individual, everyone needs credit to sustain the financial market.

One such method to take credit is through Money Lenders. By plain definition, a moneylender is an individual or a group of individuals who usually lend relatively small amounts of money at a very high rate of interest. Moneylenders claim to charge more than established banks because their lending risks are allegedly higher.

Whom do Moneylenders lend money to?

Moneylenders usually lend money to people who have no bank accounts, have a bad or no credit history, as well as to people who have too much debt and won’t get credits from their banks anymore. These also sometimes include individuals who do not have relatives or friends to offer them loans. So going to a moneylender is their last resort.

Throughout the history of lending money, moneylenders have thrived by preying on vulnerable people who have built up considerable debts.

What are hard money loans and how they work?

The loans moneylenders offer can be simply called as a Hard Money loan. A hard money loan is a type of loan that is secured by real property. These types of loans are considered loans of the last resort or can also be referred to as short term bridge loans. Hard money loans are utilized primarily for real estate transactions and are money from an individual an NOT a bank. This loan is usually taken out for a short time and is the quickest way to raise money but comes with a higher interest and a lower Loan-to-value ratio.

Since these are not official or traditional loans that one takes, the funding time frame for HMLs is immensely reduced and thus the borrower instantly gets the money in cash without undergoing a strenuous paperwork process. The typically collateral against these loans is property. In case of a default repayment, the lender does not suffer and remains profitable.

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Private Moneylenders versus Banks

If you are trying to get a business loan for your start-up or a personal loan, you might be in confusion whether it’s wise to borrow from a bank or a private lender; here are some pros and cons to consider:

When it comes to taking loans, everyone prefers bank loans, since bank interest rates can be lower. But it is also important to understand why banks offer lower rates. This is because their retail customers keep large amounts of money in their checking and savings account and thus banks have very easy access to those funds to lend out.

Private moneylenders on the other hand either have to get funds from investors who are looking for decent returns or from other banks and financial institutions who lend these private lenders funds at higher rates than it costs them to acquire that money.

Is it safe to take loans from Moneylenders?

Private Moneylending has a lot of risks that come along with it, for example, very high-interest rates, and they use only the personal property as collateral. And since property in itself is used as a protection against a default, these loans have lower loan-to-value (LTV) ratios than bank loans which drop down to around 50% to 70% versus 80% for regular mortgages.

Conclusion

There are various ways where you can take credit from. The safest options tend to be banks but have their terms for the individual to follow. Moneylenders are also an option but are generally considered to be options for the last resort. Moneylending has had a bad reputation amongst financers. But can be a good option for those who can’t get financing from banks. If you are considering this option, Bankquality.com helps you in deciding where to borrow from. Click here to read related reviews for choosing the best for yourself!

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