Private Lender vs. Bank Mortgage: Which is Better?

Buying a home is a major milestone in your adult years. It will also be the most expensive purchase you’ll make in your life. As such, choosing the right financial institution to finance your home will impact the next few years of your life.You need to find a loan that meets your needs and budget.

But should you get a traditional bank loan or take a loan from a private lender? While each option provides the financing you need to secure the property, they are structured differently. Additionally, both options have pros and cons, so your choice will depend on your priorities.

This guide will help you understand the difference between private lenders and traditional bank mortgages. Plus, learn the pros and cons of each option so you can make an informed choice for financing your new home.

Private Lending vs. Bank Lending

Private LendersBank Mortgages
Offer flexible loan options.Have fewer home loan options
Less stringent loan approval process and credit requirements.Have a strict loan approval process and credit requirements.
Shorter approval processLonger approval process
Borrow up to 6x your monthly income if earning at least S$20,000Borrow up to 75% of the property value
Interest rate capped at 4% per monthAverage interest rate is between 0.80% and 2.50% p.a.; depending on the type of property and other factors

Both banks and private lenders will provide you with the funds to buy the home of your dreams. Both options will look into your credit, income, and debt qualifications. However, each option comes with a unique set of requirements as well as advantages and disadvantages.

Typically, a traditional bank mortgage loan is less expensive. But they have stringent credit requirements, making it more difficult to get loan approval. Private lenders, on the other hand, have a larger variety of loan options and are more flexible, but they are also more expensive.

Which Is Right for You?

Gone are the days when banks were your only source of financial assistance. Today, there are plenty of options for homebuyers. While it is tempting to simply inquire with your local banker, comparing loan plans with private lenders will help you make the best choice. Private lenders are worth looking into due to their flexibility and speed in approving loan applications.

Private Lender: Best For Time-Sensitive Property Transaction

A private money lender in Singapore is any licensed money lender or trusted PTE LTD company. These lenders are not traditional banks or financial institutions but act as an alternative. Each licensed money lender is registered and regulated by the Ministry of Law.

Private money lenders in Singapore offer:

  • Personal loans
  • Business loans
  • Bridging loans
  • Foreigner loans
  • Payday loans

Before dealing with any money lender or mortgage lender, check whether they are registered and listed on MinLaw’s website. All private money lenders abide by a series of rules and regulations set in the Moneylenders Act to protect the lender as well as your right as a borrower.

The contract must contain:

  • The loan amount
  • The agreed interest rate
  • Repayment schedule
  • All relevant loan terms and conditions


  • Provide ample loan options for your every need
  • Can tailor loans to suit your financial capacity
  • Lenient credit checks
  • Less stringent loan process for faster approval


  • Loans tend to be more expensive
  • Interest rates are capped at 4% per month regardless of income level and whether it is a secured or unsecured loan
  • Loan tenure tends to be shorter than banks
  • Limited maximum loan amount of up to 6x your monthly income if you’re earning at least S$20,000.

Thanks to its flexibility and easy approval, anyone can benefit from taking a loan with a private money lender. It is particularly helpful for those who:

  • Don’t have a pre-existing relationship with a bank
  • Self-employed and have non-traditional income
  • Looking for other loan options
  • Have a less-than-stellar credit history and credit score
  • Have been turned down by a bank

Bank Mortgage: Best For Pre-Existing Bank Customers Looking For Special Rates

Traditional bank loans are the most common way to get a mortgage. Typically, you reach out to your local bank where you already have a personal account.

With a bank mortgage, you pay the principal amount plus interest. Additionally, the loan term is longer than private money lenders. Some banks may also offer special rates and benefits if you have a good relationship with them.

The downside? The loan approval process is more stringent which leads to a longer closing time. A credit check and other significant documentation are required. As such, if you have a non-traditional income, it will be harder for banks to give you approval.


  • You can borrow up to 75% of the property value
  • Home loan interest rates are more affordable at approximately 2.50% p.a.
  • Longer loan tenure of up to 30 years for HDB flats or 35 years for private properties
  • Can offer special rates or benefits to pre-existing bank customers


  • Less variety of loan products
  • Strict credit requirements
  • Long loan approval process leads to long closing times
  • Repayment amounts may fluctuate depending on the interest rate

Things to Consider: Interest Rates

In Singapore, the majority of home loans have fixed or adjustable interest rates.

  • Fixed-rate mortgage loans will charge you a fixed interest rate for up to 3 years. After that, the bank will start charging a floating rate.
  • Floating interest rates fluctuate regularly since they are pegged to a pre-designated reference rate, such as the Singapore Overnight Rate Average (SORA).


Property financing can come from numerous sources. It is not limited to traditional bank mortgages. You can also consider taking out a loan with private money lenders. The best fit for your property purchase will depend on the type of property you’re buying, your financial situation, and your goals.

Key Takeaways:

  • Both a bank lender and private lender will provide you with funds to buy the home of your dreams and both options will look into your credit, income, and debt qualifications.
  • Banks can offer higher loan amounts but have fewer home loan options and strict credit requirements.
  • Private lenders offer flexible loan options and more lenient credit requirements but have a cap on the maximum loan amount you can borrow.
  • Choose private money lenders if you are in a hurry to close a property transaction since they provide fast loan approval.
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Libby Austin

Libby Austin, the creative force behind, is a dynamic and versatile writer known for her engaging and informative articles across various genres. With a flair for captivating storytelling, Libby's work resonates with a diverse audience, blending expertise with a relatable voice.
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