Quick answer
Fast short-term private loans are quick, ignore your credit score and need no valuation or financials, but cost more per month. Longer-term private loans cost less but need a paid valuation, a credit review and often financials, and are usually limited to capital cities. Choose on your deadline and credit history.
Key points
- Short-term: fast, property-led, most towns and cities, higher monthly cost
- Long-term: slower, valuation and credit review, often capitals only, lower monthly cost
- Many borrowers use a short-term loan to bridge into a longer-term one
- The right choice depends on the deadline, the credit file and the property
- Short-term speed
- Days, same day possible
- Long-term speed
- Weeks
- Valuation
- None up front vs $2,000 to $10,000+
- Credit file
- Not decisive vs generally reviewed
Two kinds of private lender
“Private business loan” covers two quite different products. They look similar on the surface, since both are secured by property and both come from non-bank lenders, but they are built for different borrowers.
The fast short-term loan is a first mortgage, second mortgage or caveat arranged in days. The lender focuses on the property and the exit. It generally does not need a formal valuation, does not ask for financial records and does not care about your credit score. It will lend in most towns and cities across Australia.
The longer-term loan is a first or second mortgage priced for a lower monthly cost and a longer hold. The lender wants a formal valuation, which you pay for, a look at your credit history and sometimes financial records. It often limits lending to capital cities. It is slower, because it does more checking, and cheaper, for the same reason.
Side by side
| Fast short-term | Longer-term | |
|---|---|---|
| Speed | Days; same day possible for first mortgages | Weeks |
| Valuation | Usually none up front | Formal valuation, $2,000 to $10,000 or more |
| Credit score | Not the deciding factor | Generally reviewed |
| Financial records | Usually not needed | Sometimes needed |
| Location | Most towns and cities | Often capital cities only |
| Monthly cost | Higher | Lower |
| Best for | Deadlines, impaired credit, regional property | Planned refinances, clean credit, city property |
How to choose
Start with the clock. If you have a hard date within a few weeks, the longer-term route is probably too slow no matter how cheap it is. A missed settlement or an unpaid tax bill can cost far more than the saving.
Then look at your credit file. A clean recent history opens the longer-term door. A default, a judgment or an ATO debt tends to close it, and a short-term lender is the realistic option.
Then look at the property. A house or unit in a capital city is easy for any lender. A rural block, a regional shop or a specialised building is more likely to be accepted by a lender that lends across most towns and cities.
Finally, look at the paperwork you can produce. If your accounts are up to date and tidy, a longer-term lender has what it needs. If they are late or messy, a lender that decides on the property will move first.
The real cost of each
A higher monthly cost does not always mean a higher total cost. A short-term loan held for six weeks may cost less in dollars than a longer-term loan once a valuation, legal fees and months of interest are added up. Equally, a short-term loan left running for a year can cost far more than the cheaper alternative. Work out the total cost in dollars for the time you will actually hold the loan. Our caveat loan calculator does the sum from your own figures.
First or second mortgage within each type
Both styles come in first-mortgage and second-mortgage form. A second mortgage borrows against the equity left behind your existing lender and leaves that loan alone. A first mortgage pays the existing lender out and replaces it. Because a second mortgage is usually a modest slice of the total debt, a pricier second mortgage behind a cheap bank loan can cost less overall than a pricier first mortgage across the whole amount. See the blended cost of a second mortgage for a worked example, and try the blended cost calculator with your own quotes.
A common plan: bridge, then refinance
Many borrowers do not choose one or the other. They use a fast short-term loan to clear the immediate problem, then refinance into a cheaper longer-term loan or back to a bank once the paperwork is done. That works well provided the exit is real and the short-term loan has no punishing minimum interest period. Read our exit strategies guide before you commit.
A quick decision guide
If you answer yes to two or more of these, a fast short-term loan is probably the right start: the deadline is inside a month, your credit file has a default or a tax debt on it, the property is outside a capital city, or your financial statements are not up to date. If you answer no to all four, price a longer-term loan as well, because the saving over a year can be meaningful.
Costs people forget to compare
Compare the valuation fee, which can run from $2,000 to $10,000 or more on the longer-term path and is often paid before an offer. Compare legal costs, establishment fees, the minimum interest period and any discharge fee. Compare the cost of waiting: late payment penalties, a lost deposit or a missed contract can easily exceed the whole cost of a fast loan. Put each in dollars, add them up for the period you will hold the loan and decide on the total.
Not sure which side you are on?
Describe the property, the amount and the deadline, and a person on our desk will tell you which style fits and roughly what it will involve. There is no credit check when you first enquire. Start your enquiry.
Frequently asked questions
Is a first or second mortgage better?
Neither is better in every case. A second mortgage leaves a cheap existing loan in place and borrows against the remaining equity. A private first mortgage pays out the existing lender and replaces it, so the whole debt is priced at the private lender. Compare the blended cost of each option.
Can I start short-term and move to long-term later?
Yes, and it is a common plan. You bridge the deadline with a fast short-term loan, then refinance into a cheaper longer-term loan or a bank once the valuation, credit and paperwork are done. Check the minimum interest period and discharge terms before you start.
Which one is easier with bad credit?
The short-term path. Fast lenders decide on the property and the exit, so a poor credit file is a conversation rather than a refusal. Longer-term lenders generally review credit and may decline or price up.
How do I know which type of lender I am dealing with?
Ask three questions: does the lender need a formal valuation before an offer, does it review credit and financials, and does it lend outside the capitals? Yes to the first two and no to the third points to a longer-term lender.