A Lenders vs Private Lenders: What’s the Difference?

When looking for a mortgage in Canada, you'll mainly come across two types of lenders: A lenders vs private lenders. But which one is the smarter option?

In this guide, we’re going to walk you through what each lender requires, how their interest rates and loan structures differ, and scenarios where one may be better than the other.

What Is an A Lender (Traditional Lender)?

An A lender, also known as a traditional lender, is a major financial institution (like banks, credit unions, and large trust companies) that offers standard mortgage products with competitive interest rates. A lenders typical requirements include:

• A credit score of 650 or higher. (According to Credit Canada, major banks require a minimum score of 680 to offer their best rates.)
• Stable employment/income.
• Full documentation of income and assets.

What Is a Private Lender?

A private mortgage lender is a non-traditional lender, including individuals, pooled investment vehicles (e.g., a MIC), or privately held mortgage companies. How they operate is very different from A lenders, for instance:

• They primarily focus on property value and equity rather than income verification and credit requirements.
• Their regulation status varies. MICs and licensed private lenders are regulated, but one-off individual loans can be less standardized.
• The approval process is quicker, often without strict underwriting and stress testing. (Should the stress test be required for renewal? Read our guide for more info.)

Key Differences Between A Lenders and Private Lenders

The contrast between A lenders vs private lenders is primarily about cost, underwriting standards, and borrower protections. Let’s take a closer look at the differences between the two:

• Requirements: A lenders require verified employment/income, good credit, and full documentation; private lenders accept alternative income proofs or weak credit but require equity (security).
• Interest rates and fees: A lenders offer the lowest rates (1.5-5%) and standard fees; private lenders have substantially higher interest rates (10-18%) and receive origination or broker fees, too (1-3% of the total mortgage amount).
• Approval timeline: A lenders have a slower process (days, or even weeks) with formal underwriting; private lenders are faster (often days) and have a more streamlined approval.
• Loan terms and structure: A lenders have multi-year amortized terms (1-5 years) with established prepayment rules; private lenders offer shorter terms (1-3 years) with mostly interest-only payments and balloon principal due.
• Flexibility: When comparing traditional lender vs private lender, you’ll notice that private options are more flexible on property types and borrower profiles. A lenders are more prescriptive, but have stronger consumer protections.
• Regulation and consumer protections: A lenders follow federal/provincial regulations (like OSFI), whereas private lenders have more variety: MICs operate under rules, but individuals have less standardization.

When a Private Lender Might Be a Better Option

Now, when to use a private lender? Considering the differences, these scenarios are the most appropriate:

• When you have poor credit or a recent bankruptcy where A lenders will decline your application.
• When you have alternative income (self-employed, contractor, foreign income) that A lenders won’t verify.
• When you have urgent financing needs for quick closing, auction purchases, or other time-sensitive deals.
• When you need short-term strategic financing such as bridge loans for property sales or refinancing into an A/B lender.
• When you need rehab or renovation finance, where quick access to funds and draw schedules are crucial.
• When you have unique or non-standard properties like severely renovated homes, mixed-use, or certain rural properties.

When an A Lender Is Usually the Best Choice

When weighing bank mortgage vs private mortgage, these are the situations where make A lenders the go-to option:

• When you have a strong credit score and a documented, stable income.
• When you have long-term financing goals.
• When you prefer the lowest possible interest rate and predictable payments.
• When you need regulated consumer protections and standard disclosures.
• When you’re weighing refinance choices. (Make sure to understand the differences among refinance vs heloc vs second mortgage before that)

Risks and Drawbacks of Private Lending

Private mortgage pros and cons tilt toward convenience and flexibility, but at what cost? Here’s what you need to know:

• Private mortgages come with higher interest rates and fees, making them more expensive from day one.
• They also include stricter penalties, such as late charges or legal enforcement costs.
• They typically have very short terms, which can force you to refinance or sell quickly (especially when a balloon payment is due at the end).
• Private lenders require a clear exit strategy. You must show your plan to transition to more affordable financing once the mortgage term ends. (Check out mortgage renewal tips to make an informed decision)
• Approval relies heavily on property equity. This increases risk if real estate values drop and your equity cushion shrinks.

FAQ

Are private lenders risky?

They are inherently risky because of their higher rates, fewer regulations, and faster foreclosures. There’s also a higher risk of predatory terms, making careful due diligence essential before signing any agreement.

Can I get a mortgage from a private lender if my credit is bad?

Yes, you can go for private mortgage lenders if you have bad credit or no credit. However, expect higher interest rates, fees, and shorter terms, and ensure you have a clear exit strategy.

Are interest rates always higher with private lenders?

Yes, their interest rates are almost always higher as they take on more risk and serve borrowers that A lenders won't.

How fast can a private lender approve a loan compared to a bank?

Private lenders often approve loans in 24 to 72 hours, while banks need weeks and sometimes even months.

Final Thoughts: Choosing the Right Lender for Your Needs

Whether you're seeking short-term financing or long-term stability, your loan terms should align with your goals.

If you're looking to refinance and stay in your home, consider A lenders with predictable payments and lower rates. For shorter-term needs or urgent financing, private lenders are faster and more flexible, though at a higher cost.