Bad Credit Auto Refinancing Loan

Depending on the lender’s individual situation, they may wish to have the money repaid in just a few months or years, or they may be willing to set up a lengthy repayment period. Private credit is seen quite frequently in the real estate market. It’s not uncommon to find people selling homes who are willing to also finance the buyer.

How does private credit work?

For many, the most obvious source of private credit is family or friends. It would seem that those close to you who have the resources should be prepared to help you out on reasonable terms. Most financial experts however, caution against borrowing from those close to you. The biggest reason is that any problems with the financial relationship can cause a great deal of tension on a personal level. If you feel you can keep money and relationships separate, be sure to have all of the proper documents drawn up to make sure any financial transaction is as legally binding as it can be. There are several websites that can assist you in printing and executing these documents.

If you’d prefer to lend from a stranger, there are numerous ways to find people with money to lend. If you would like to refinance your home mortgage but are concerned that your credit isn’t good enough for a bank loan, talk to a reputable mortgage broker and let him know that you are interested in private credit. A good broker will know not just institutions, but individuals in the community who are interested in lending, especially if there is strong collateral involved.

There are also a number of online sites set up with the intention of bringing private credit providers and seekers together. Prosper.com and Lending Club are two well-known and reputable sites that can help you find a lender who might meet your needs.

Another way to find private credit is simply by networking. You may not personally know people with money to lend, but they might know someone. Put the word out that you’re looking to borrow, and what kind of collateral you have, and you might get lucky.

Benefits of private credit

Generally, it is considered that private lenders are more forgiving of a poor credit history and other financial irregularities. Even though they may verify much of the same information that a bank might, they are less likely to have rigid procedures in place that preclude them from lending to specific groups.

Another benefit of private lending is that the borrower may pay less in fees and interest. While a private party will want to earn a respectable rate of return, he or she is unlikely to have the kind of overhead costs that a financial institution has to cover. If you are financing real estate, a private lender might be willing to lend against a larger percentage of your home’s equity than a bank will.

Disadvantages of private credit

Probably the single biggest problem with private credit is that loans can be improperly documented, leading to confusion and disputes, especially when it’s time for payoff. Banks are strictly regulated to disclose detailed information about repayment terms and interest rates while individuals aren’t held to the same standards. If you get a private loan, read the documents carefully, if at all possible, have an attorney look them over, and be sure you understand everything before signing.

Even though you might get more favorable terms from a private lender, a lower credit score will still mean a higher interest rate, since you represent a higher risk when it comes to repayment. Be sure that the interest rate is reasonable and that you are able to repay the loan under the terms spelled out in the loan documents. A private lender may be more lax about your income requirements than a bank would be, but you still need to be able to make the payments. If you are late on your payments, or default, a private loan can still be reported to the credit bureaus, further damaging your credit.

Private credit is a viable alternative if you need to refinance but have poor credit. Just be sure that you understand exactly what you are getting into and realize that you need to repay as promptly as you would any other loan.

If you have bad credit and need to refinance or borrow more money, private lending is an alternative to getting a bank loan.