Advantages of Private Lenders

• One advantage of using a private lender for a personal loan is that funds are transferred directly to you to use however you choose. For instance, when using traditional means for home and school loans, the money is sent directly to the school or seller on your behalf. With a private loan, you can borrow a higher amount than you need to use for other things, such as remodeling a home or living expenses while in school.
  
  

Disadvantages of Private Lenders

• Private lenders may not advertise like larger institutions, and you may have to search to find one. A private lender's funds may be available only at certain times and are limited, and the type of loan you need is not always available. Also, interest rates with private lenders can be considerably higher than traditional loans. You must be aware of the details of the private loan agreement, because requirements may be stringent. Some require a balloon payment at a certain time that may be difficult to afford. There is the risk that a private lender may sell your loan note to a bigger institution, which may affect the level of personal service and personal communication.
  
  

Finding Private Lenders

• Many private banks serve as private lenders for personal loans. Family, friends, your local credit union, employer or private investor also may be options for private personal loans. Each lender has its own requirements and stipulations for the loans, including payment terms. Private lenders may be more flexible with payment and interest terms than traditional sources, but they require you to make your predetermined payments faithfully. Make sure that you understand the terms and can afford the payment terms.
  
  

Applying for the Loan

• You may want to check your credit score before applying for a personal loan. There are several online services that provide your credit score for a price. You can obtain a free credit report each year through AnnualCreditReort.com, and, although the credit report does not include a credit score, it provides all the data used to calculate a credit score. Private lenders may or may not have more lenient credit requirements than non-private lenders, but there will be some requirements. Ask the lender about the credit requirement before applying. Identify the lender likely to offer you a loan, and complete its application. Apply to several lenders, and choose the one that offers the best interest rates and repayment terms. You must provide documentation regarding personal information, income sources, debts and expenses, and you may be required to specify your plans for the loan.
  
  

After Getting the Loan

• Make your payments on time. If you can't make a payment on time, contact the lender and try to arrange an alternate date for payment. Some private lenders report your payment to credit reporting agencies, so timely payments can improve your credit score, and late payments can damage your score.