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All You Need to Know about Private Lenders

By Mini Saha | March 24, 2022

Nowadays, there are several options to borrow money online, and one of them is through a private lender. If you are looking to learn about how you can borrow money from a private lender, get all the details in this blog.

Who (or What) Are Private Lenders?

Private lenders could be individuals or entities that offer a variety of loans, but the two most common types are real estate loans and personal loans.

Private lenders are not tied to any bank or credit union and generally have faster approval times due to their streamlined, informal application process. They may also be willing to work with individuals with a bad credit range. Besides, private lenders don’t care much about your credit score.

How Private Lenders Work

Loans from private lenders work almost similar to loans from banks and other financial institutions. You receive money to purchase property, make home improvements, consolidate debt, or manage other expenses.

Once that happens, you pay the loan back in installments with interest, which is how lenders make money.

Private Lending Companies

The first major type of private lender is a lending company that just like banks looks to profit off of the interest you pay. However, when it comes to personal loans, companies referred to as online lenders are private lenders that run their business using the internet, which means they lend money online.

These are a few recognized sources of private lenders.

  1. Lendee
  2. LendingClub
  3. LendingPoint
  4. Prosper
  5. Avant

Individual Private Lenders

People looking to invest and earn money through the interest borrowers pay on loans are the second most prominent type of private lenders.

Private lending may also earn investors a better return on their investments than what a bank would offer. Sometimes, individual private lenders can also be people the borrower knows, who may be willing to help with money and not interested in making a profit.

Three Main Circles of Private Lenders

Primary Circle

Anyone who knows you directly, such as your family, friends, or colleagues, is a part of this circle. Since these people have a personal relationship with you and know your situation first-hand, you have a better chance of getting them to loan you money.

Secondary Circle

Acquaintances, friends of friends, or those people who are connected to you but don’t know you well are a part of this circle. These individuals may be willing to hear your pitch to invest money because you have some sort of association with them.

Third Circle

Accredited investors, who don’t know you, are a part of this circle. Getting money from them requires you to follow a process and may take the most effort to convince them into loaning you money.

Fortunately, several trusted peer-to-peer lending platforms make it easy to borrow money online by streamlining the process.

Are Private Lenders Legal?

The answer is ‘yes.’ It’s perfectly legal for organizations other than banks or credit unions to lend money. Although private lenders are still obligated to comply with the usury laws and banking laws of the states they operate.

It implies that the rates private lenders charge are regulated. Moreover, depending on the state, private lenders may only be able to lend a certain amount of money despite not holding a banking license.

What Differentiates Private Lenders From Hard Money Lenders?

Private money refers to funding provided by a family member, friend, or business partner, whereas hard money refers to funding provided by a non-institutional lending company with defined criteria.

To clarify further, hard money lenders are private investors who offer quick loans with property or assets used as collateral. Similarly, they don’t finance loans with money from deposits as banks do.

Hard money lenders use private money to finance loans, allowing you to bypass the grueling regulatory hurdles that are a part of the traditional loan application process.


Borrowing money from a bank may take up to a few weeks before you even get to know whether you qualify or not, but with private lenders, it’s different. You can get financial help faster and without getting involved in elaborate protocols.

With Lendee, get easy access to a network of lenders and receive a personal loan at a fair rate no matter what your credit score is.

Sign up with Lendee, your trusted partner for financial crises, and get exciting offers.