Private lending interest rate assessment and why full disclosure is important

borrowers and investors shaking hands in agreement

It’s widely believed that transparency is the currency of trust in private lending, and at Vado Private it is one of our core guiding principles.

Trust is both precious and tenuous.

It can take years to establish and build, but the slightest omission or indiscretion can act as a wrecking ball, smashing it to rubble and dust. The relationship between real estate investor partners and borrowers lies in ruins, and cannot be resurrected.

I am sympathetic to the hesitancy and misgivings experienced by both borrowers and real estate private lenders when entering into large transactions. It’s human nature. Trust is another risk game, and the stakes are often hair-raisingly high.

And this is why transparency is our currency, and as vital to the prosperity of our private lending business as the monetary currency we deal with day to day.

As a well-respected and reputable provider of private financing solutions, our team believes that professional relationships can only flourish in the spirit of openness, and so we insist on complete disclosure of all transaction metrics to all counterparties: real estate private lenders and borrowers.

So here we will disclose how we price our private loans.

Naturally, private loans are priced for risk, and the interest rates charged reflect a balancing of economic conditions, other private lending providers’ comparative rates, and the financial risk associated with each transaction.

Our mission is to create a private lending and investment platform that enables borrowers and investors to collaborate in a more transparent and efficient manner, and this is just one way we are in an important position to provide a superior product and service proposition.

Here is the full disclosure of our interest rate assessment. Generally, interest rates are determined by:

  • Level of gearing: A lower LVR usually equates to a lower interest rate.
  • The term of the private loans: For example, a one month loan is priced different to a twelve month loan.
  • Security type and location: Vacant land with no planning approval entails more risk than established real estate. Furthermore, certain locations experience less volatility and have less supply than other.
  • Loan type: Construction loans carry higher charges to reflect the level of financial risk involved and the fact they require more compliance than non-construction loans.
  • Borrowers balance sheet and track record: An experienced real estate developer with impressive credentials, including robust personal guarantees, provides the private construction loan lenders with more assurance, and therefore preferential rates.
  • Level of presales (construction loans): A greater number of qualifying presales helps mitigate risk and this is often reflected in the pricing.

Many private lenders don’t disclose the ‘hidden charges’ such as early termination fees, management fees and exit fees until the private loans are formally approved. By this time it’s usually too late for the borrower to withdraw.

We are upfront with our Term Sheets, private lending process and pricing structure and we ensure all parties are clear about what they are entering into. It’s never about moving the targets or shifting the goalposts. It’s about keeping everyone in the loop so trust is established and never compromised.