Private lending offers Australians an alternative path to funding when traditional banks say no or when speed is critical. Here's everything you need to know about private loans in Australia.
What is Private Lending?
Private lending is when individuals or private companies (not banks) lend money secured against property or other assets. Private lenders focus primarily on the security (collateral) rather than your credit score or employment history.
Key Characteristics:
- Funded by private investors, not deposit-taking institutions
- Security-focused approval (equity, not credit)
- Faster approval (days vs weeks)
- Higher interest rates
- Shorter loan terms (typically 1-5 years)
- More flexible criteria
How Private Lending Works
The Basic Process:
- You apply with a private lender, providing property details and loan requirements
- Lender assesses the property value and your equity position
- Quick approval based primarily on security, not credit score
- Fast settlement often within days or weeks
- Repayment typically interest-only with principal due at term end
Example:
- You own a property worth $800,000
- You have a bank mortgage of $400,000
- Available equity: $400,000 (50% of value)
- You need $200,000 urgently for business
- Private lender approves based on equity
- Funds received in 5-10 days
Who Uses Private Lending?
Common Borrower Types:
1. Property Investors
- Auction purchases requiring fast funds
- Bridging finance between property sales
- Development projects
- Renovation funding
2. Business Owners
- Working capital needs
- Equipment purchases
- Opportunity investments
- Cash flow management
3. Self-Employed Individuals
- Difficulty proving income to banks
- Complex income structures
- Tax returns don't reflect true income
4. Credit-Impaired Borrowers
- Recent defaults or late payments
- Discharged bankruptcy
- Multiple credit inquiries
- Bank declined their application
5. Time-Sensitive Situations
- Settlement shortfalls
- Urgent business opportunities
- Legal settlements
- Tax payments
Types of Private Loans
1. Caveat Loans
Term: 1-12 months Rate: 2-4% per month (24-48% p.a.) Security: Caveat lodged on property title Speed: 24-48 hours possible Best for: Urgent, short-term funding
2. Second Mortgage Loans
Term: 1-5 years Rate: 9-18% p.a. Security: Second position behind existing mortgage LVR: Combined up to 75-80% Best for: Equity release, debt consolidation
3. First Mortgage Loans
Term: 1-5 years (some up to 10-30 years) Rate: 7-12% p.a. Security: First mortgage on unencumbered property LVR: Up to 65-75% Best for: Lower rates when no existing mortgage
4. Bridging Loans
Term: 3-24 months Rate: 0.8-3% per month (9-36% p.a.) Purpose: Bridge gap between buying and selling Best for: Property transitions
5. Development Finance
Term: 12-36 months Rate: 9-15% p.a. Structure: Progressive drawdowns Best for: Property development projects
6. Commercial Loans
Term: 1-10 years Rate: 8-15% p.a. Purpose: Commercial property or business funding Best for: Business owners, commercial investors
Private Lending vs Bank Lending
| Factor | Private Lenders | Banks |
|---|---|---|
| Approval Time | 24 hours - 2 weeks | 2-8 weeks |
| Interest Rates | 7-20% p.a. | 5.5-7.5% p.a. |
| Credit Requirements | Flexible | Strict |
| Income Proof | Minimal | Extensive |
| Loan Terms | 1-5 years typical | 10-30 years |
| Security Focus | Primary consideration | Important but not sole |
| Complex Situations | Often accepted | Usually declined |
| Fees | Higher (1-3%) | Lower (0-1%) |
How Much Do Private Loans Cost?
Interest Rates by Loan Type:
Caveat Loans: 24-48% p.a. (2-4% monthly)
- $100,000 loan = $2,000-$4,000 per month interest
Bridging Finance: 9-36% p.a.
- $300,000 loan = $2,250-$9,000 per month interest
Standard Private Mortgage: 7-15% p.a.
- $500,000 loan = $2,917-$6,250 per month interest (interest-only)
Fees:
- Application/Establishment: 1-3% of loan amount
- Valuation: $300-$1,000
- Legal: $1,000-$3,000
- Monthly service fee: $0-$200
- Exit fee: $0-2% (check loan contract)
Total Cost Example: $200,000 caveat loan for 6 months @ 2.5% monthly:
- Interest: $30,000 (6 × $5,000)
- Establishment fee (2%): $4,000
- Legal/valuation: $2,000
- Total cost: $36,000 (18% for 6 months)
Is Private Lending Regulated?
Yes - heavily regulated:
National Consumer Credit Protection Act (NCCP)
- Private lenders must hold Australian Credit License (ACL)
- Must follow responsible lending obligations
- Regulated by ASIC (Australian Securities and Investments Commission)
Check a Lender:
- Search ASIC's Professional Registers
- Verify ACL number
- Check for complaints or enforcement actions
Your Protections:
- Lender must assess loan is "not unsuitable"
- Must provide clear disclosure of costs
- Must provide loan contract before settlement
- Cannot engage in predatory lending
When to Use Private Lending
Choose Private Lending When:
✅ You need funding urgently (days or weeks, not months) ✅ Banks have declined you (credit, income, or complexity issues) ✅ You're self-employed with hard-to-prove income ✅ Short-term need (planning to refinance to bank later) ✅ Time-sensitive opportunity (auction, contract deadline) ✅ Credit is impaired (defaults, bankruptcy, late payments) ✅ Unique property or situation (unusual property, complex structure)
Avoid Private Lending When:
You can wait 4-8 weeks for bank approval You have perfect credit and provable income You need long-term funding (10+ years) You can't afford the repayments You don't have a clear exit strategy
How to Choose a Private Lender
1. Verify Licensing
- Check ACL (Australian Credit License) on ASIC register
- Avoid unlicensed lenders
2. Compare Rates and Fees
- Get written quotes from 3+ lenders
- Compare total cost, not just interest rate
- Check for hidden fees
3. Read Reviews and Reputation
- Google reviews
- Industry associations
- Ask for references
4. Understand the Terms
- Interest rate and how it's calculated
- All fees (upfront and ongoing)
- Loan term and any extension options
- Exit fees or penalties
- Repayment structure
5. Get Everything in Writing
- Formal loan offer
- Loan contract
- Fee schedule
- Never pay large fees before approval
The Private Lending Process
Step 1: Inquiry (Day 1)
- Contact lender or use introducer platform
- Provide basic details (loan amount, property, purpose)
- Initial assessment of feasibility
Step 2: Application (Day 1-2)
- Submit formal application
- Provide property details
- Explain loan purpose and exit strategy
- Provide ID and ownership evidence
Step 3: Valuation (Day 2-5)
- Lender arranges property valuation
- Desktop, drive-by, or full inspection
- Confirms available equity
Step 4: Approval (Day 3-7)
- Lender reviews application and valuation
- Issues formal approval with terms
- Loan contract prepared
Step 5: Legal Review (Day 5-10)
- Review loan documents
- Seek independent legal advice
- Sign loan contract and mortgage documents
Step 6: Settlement (Day 7-14)
- Mortgage registered on title (or caveat lodged)
- Funds released to your account
- Loan active, repayments begin
Timeline: 7-14 days typical, as fast as 24-48 hours for caveat loans
Exit Strategies for Private Loans
Private loans are typically short-term. Plan your exit:
Option 1: Refinance to Bank (most common)
- Use private loan for 6-24 months
- Improve credit, income, or situation
- Refinance to cheaper bank loan
- Save thousands in interest
Option 2: Sale of Asset
- Sell property or business asset
- Repay loan from proceeds
- Common for bridging loans
Option 3: Refinance with Another Private Lender
- If situation unchanged, extend with another private lender
- Sometimes at better rates
Option 4: Business Income/Contract Payment
- Business generates revenue to repay
- Common for business/working capital loans
Private Lending Red Flags
Avoid lenders who:
- Require large upfront fees before approval
- Have no Australian Credit License
- Use high-pressure sales tactics
- Won't provide written terms
- Have unclear fee structures
- Charge rates above 25-30% p.a. (except short-term caveat)
- Won't allow you to get legal advice
Common Questions
Is private lending legal? Yes, fully legal and regulated in Australia. Lenders must hold ACL.
Are private loans safe? Yes, when dealing with licensed lenders. Verify licensing and get legal advice.
Can I get a private loan with bad credit? Yes. Private lenders focus on property equity, not credit score.
Do private lenders do credit checks? Some do for background, but it's not the primary approval factor.
Can I repay a private loan early? Usually yes. Check for early repayment fees in your contract.
What if I can't repay? Lender can enforce their security and sell the property. Communicate early if struggling.
Real Examples
Case 1: Property Investor
- Needed $150,000 for auction deposit by Monday
- Applied Thursday, approved Friday
- Caveat loan @ 2.8% monthly for 3 months
- Won auction, settled sale 90 days later
- Total cost: $12,600 but secured $650,000 property
Case 2: Business Owner
- Bank declined due to 2-year tax returns showing losses
- Business actually profitable (cash flow positive)
- Private lender approved $250,000 @ 10% p.a.
- 2-year term, interest-only
- Plan: Refinance to bank after next profitable tax return
Case 3: Divorcing Couple
- Needed to buy out ex-spouse's 50% share ($300,000)
- Recent credit default from separation period
- Private lender approved @ 11% p.a., 3-year term
- Refinanced to bank after 18 months @ 6.5%
- Cost: ~$20,000 extra interest, but kept family home
Your Next Steps
- Determine your needs: How much, how long, what purpose?
- Calculate your equity: Property value - existing debts
- Get your documents ready: ID, property details, income evidence
- Compare options: Get quotes from multiple lenders
- Connect with private lenders: We match you with licensed lenders
Key Takeaways
- Private lending offers speed and flexibility when banks can't help
- Higher cost than banks but often worth it for urgent or complex situations
- Focus on security (equity) not credit score
- Typically short-term solution (1-5 years)
- Always use licensed lenders (check ASIC register)
- Have a clear exit strategy (refinance, sale, or repayment plan)
Private lending bridges the gap between needing funds now and qualifying for traditional bank finance. Used strategically, it can save deals, grow businesses, and solve urgent financial challenges.
Ready to explore private lending options? Connect with licensed private lenders for a confidential, no-obligation assessment.