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Is it safe to borrow from a private lender?
It can be safe to borrow from a private lender when the lender is genuine, the documents are reviewed by your lawyer and you have a realistic way to repay. The main risks are higher costs, short terms and losing the property if the loan is not repaid. Most problems start with a weak exit plan.
Written by Richard Goodwin, Founder and author, PrivetReviewed by Privet Team, Editorial review team, PrivetLast reviewed 23 October 2026
The main risks
- Cost: interest and fees are higher than bank finance.
- Short term: the loan must be repaid or refinanced quickly.
- Default interest: an extra rate can apply if a payment is missed or the term ends.
- Security: the lender can take possession and sell if you default.
Why your exit strategy matters most
An exit strategy is how the loan will be repaid: a sale, a refinance to a bank, or another payment. Test it before you borrow. Ask what happens if a sale takes three months longer, or a refinance falls through. Model it with the exit timeline tool and read exit strategies.
Red flags to walk away from
See the full list in scams and red flags.
- Upfront fees paid before any written offer or valuation.
- Pressure to sign quickly or skip your own lawyer.
- Promises of approval with no checks at all.
- No ABN, licence details or physical business presence you can verify.
How to protect yourself
Get independent legal advice on the loan and mortgage. Read the term sheet fees and default clauses guide. Understand where the loan ranks on title using mortgage ranking and priority.
Frequently asked questions
What is the riskiest type of property loan?
Loans ranking behind other debt, such as caveat loans, second mortgages and mezzanine finance, usually carry more risk for both sides. They cost more and leave less room if values fall.
What happens if I cannot repay a private loan on time?
Default interest and fees may apply, and the lender can enforce its security. Talk to the lender early about an extension and get legal advice. See [default and enforcement](/learn/borrower-protections/default-and-enforcement).
Related guides
- Scams and red flags
- Term sheet fees and default clauses
- Mortgage ranking and priority
- Is private lending legal in Australia?
Glossary: combined lvr
Run the numbers
Test cost and timing with the matching calculator before you speak to anyone. Then send one enquiry to finance providers.
Cite or share this guide
Privet (2026). Is it safe to borrow from a private lender?. Retrieved from https://privet.com.au/is-it-safe-to-borrow-from-a-private-lender
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