The term Private money is a commonly used in banking and finance. It refers to lending money to a company or individual by a private individual or organization. While banks are traditional sources of financing for home purchases, and other purposes, private money is offered by individuals or organizations and may have non traditional qualifying guidelines.
There are higher risks associated with private lending for both the lender and borrowers. There is traditionally less “red tape” and regulation to assist towards quicker successful approvals.
Private money can be similar to the prevailing rate of interest or it can be very expensive. When there is a higher risk associated with a particular transaction it is common for a private money lender to charge an interest rate above the going rate.
There are private money lenders in virtually every Australian state , seeking a chance to earn above average rates of return on their money. With that comes the risk that a private money loan may not be re-paid on time or at all without legal action. However, in the case of a real estate private lending the lender can ask for a deed on the property in their name & insurance on the property the same as a bank lending money would require as collateral to help insure they be repaid in the event of a default on the loan or risk to the property.
In that case the lender gets the property and can sell it to recoup their investment. Private money is offered to customers in many cases in which the banks have found the risk to be too high for them to finance the offer.