Direct Private Lenders For Personal Loans

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Direct Private Lenders For Personal Loans

Written by Lisa Rennie
Fact-checked by Caitlin Wood

Updated June 2, 2021

Direct Private Lenders For Personal Loans


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There may be times in life where a large sum of money is needed to cover the cost of a big expense. In these cases, it may be necessary to get some financial assistance in the form of a personal loan. 

Even investments – such as real estate – typically require some leveraging of money. Particularly for investments that require a large sum of money upfront to cover the cost, lending is generally required to make the transaction happen, and this necessitates the need to work with a lender.

Banks and credit unions tend to be the more obvious choices when it comes to getting a personal loan or any other type of loan product, but these entities typically have very strict lending standards that they abide by. Rather than obtaining financing through banks and traditional lenders, anyone who needs a loan may be able to obtain one through a direct private lender.

These private lenders are individuals or groups of people who loan out their own capital to others who need large quantities of money to make a large purchase or cover a costly expense with no middlemen involved. 

Private lenders are in the business to make money from the funds they loan out, which they can earn through interest or a cut from any profits made. The money is then repaid through regular installment payments or through a lump sum payment made by a certain date.

The question is, should you use a direct private lender to access funds for a personal loan?

Pros and Cons Of A Direct Private Lender

There are several reasons why you may want to fund your purchase using financing products from private lenders. But there are a few drawbacks that are also worth mentioning. Let’s break down the pros and cons of working with a direct private lender.


  • You don’t need a good credit score to qualify (which is typically the case with traditional lenders)
  • Loans can be approved and processed more quickly


  • Interest rates tend to be higher than traditional loans
  • Refinancing can be difficult 
  • Term length can be much shorter compared to traditional loans

Credit Scores And Private Lenders

As mentioned above, you may not need a high credit score to secure a loan with a private lender. These types of alternative lenders do not care so much about a borrower’s credit score as a bank would. Instead, they place more weight on other factors

For instance, private lenders may care more about the value of the collateral you may be using to secure the loan. That way, if you default, they have something valuable that they can recoup and sell to make up for any potential losses.

Also, private lenders may also be more interested in your latest financial activity. Your credit score could be low as a result of past irresponsible behaviour, but you may have been making a valiant effort over the recent past to make your bill payments on time. 

What Documents Do I Need When Applying For A Personal Loan With A Direct Private Lender?

When you apply for a loan, there are certain pieces of information that the lender will want to look at before you get approved. With traditional lending channels, the paperwork you’d need to submit is typically extensive. Traditional lenders will want to make sure that you are a reliable borrower who will be diligent at making payments to pay off your loan. 

Lenders prefer to deal with borrowers who pose little risk, and the best way to make sure they avoid risky applicants is by conducting extensive research, which is done by reviewing all the documentation that they request from you.

With a direct private lender, however, the paperwork required to be submitted is much less extensive. Applying for a personal loan from a lender in this sphere is simpler and much more streamlined. 

Generally speaking, you can expect to provide the following documentation:

  • Proof of age: You’ll need to be the age of majority to get a loan
  • Proof of address: This will verify that you are a permanent resident of Canada
  • Existing loan documentation: The lender may want to see how much of your income is already going toward other debt obligations
  • Proof of employment: The lender will want to verify if you are working and if your income will adequately cover the loan payments

Cost Of Borrowing A Personal Loan From A Private Lender

As with any other type of loan, a personal loan from a private lender comes with certain costs. These can include interest and fees that the lender will charge to cover the costs of administering the loan and profit from the transaction.

While it’s understandable that fees may be involved, it’s important that these costs are transparent and advertised clearly. There are some predatory private lenders who have hidden fees attached to their loan products that borrowers do not find out about until after they’ve signed on the dotted line.

It’s important that you make sure that all fees are communicated upfront and are easily found in the details of the contract before you commit.

The True Cost of Borrowing

Are Direct Private Lenders Safe?  

There are many private lenders out there who are safe to work with. But unfortunately, as mentioned earlier, there are some who may practice predatory activities and are only out there to scam borrowers and make a quick buck. Before you apply for a loan with a private lender, make sure that you look out for certain things, such as:

  • The lender’s experience in the lending industry
  • The lender’s rates and terms
  • Reviews and complaints on the Better Business Bureau (BBB)
  • Other online reviews
  • “Guarantee” of approval (which no one can or should really make)
  • Required insurance payments upfront (which is illegal in Canada)

These are all red flags that you may be dealing with a scammer who is only in it to get you into a deal you will have trouble getting out of. Stay away from these lenders and look elsewhere.

FAQ's About Working With Direct Private Lenders

Can I get a personal loan with a direct private lender if I have bad credit? 

Yes, you can get approved for a personal loan even if your credit score is lower than it could be. Bad credit lenders are available to provide loans to borrowers with credit scores that are too low to get approved through conventional channels. Rather than placing more focus on your credit score, these lenders place more emphasis on your latest financial activity, your income/job, and your assets/debts.

Who can apply for a personal loan with a direct private lender? 

Anyone who meets the following criteria can apply for a personal loan from a private lender: 
  • Over the age of 18 years
  • Canadian resident
  • Has a bank account
  • Is employed with a certain level of income
  • Has a strong debt-to-income ratio (which shows how much of your monthly income is dedicated to paying off existing monthly debt)

How do I improve my chances of getting a personal loan from a direct private lender?

Your income and debt levels play a big role in your eligibility for a personal loan from a private lender. In order to improve your chances of loan approval, consider taking some time to pay down any existing debt you may have. This will help reduce your debt-to-income ratio.  If possible, you may also want to do what you can to increase your income, which will also show your lender that you are able to keep up with your payments. Consider reducing the loan amount you are asking for. Requesting a loan that is too high may lower your chances of loan approval. Further, you may also want to consider getting a co-signer to help you secure a loan, particularly if your credit rating is compromised.  

What can my private lender do if I miss a payment on my personal loan? 

Lenders typically have consequences for borrowers who default on their loans. But private lenders are not regulated the way traditional banks are. As such, they may have their own unique penalties against borrowers who miss payments.  Private lenders may charge a late fee, increase the interest rate on the loan, or repossess the collateral used to secure the loan. You’ll want to read the fine print in the contract you sign to identify what the consequences may be if you miss your loan payments.

Final Thoughts

Private lenders offer borrowers a different path when it comes to obtaining a personal loan. While banks and credit unions are an option, private lenders may provide those with subpar credit a better chance of loan approval. Be sure to work with the right lender who can provide you with the loan you need without putting you in a position where you are unable to make good on your loan payments.

Rating of 5/5 based on 2 votes.

Lisa has been working as a writer for more than a decade, creating unique content that helps to educate Canadian consumers. She specializes in personal finance, mortgages, and real estate. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. She enjoys sharing her knowledge and experience in real estate and personal finance with others. In her spare time, Lisa enjoys trying funky new recipes, spending time with her dog, and of course, revelling in the joy of family.

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