Quick Summary
- Loan Amount: $3.3 million refinance facility
- LVR: 72% secured across 3 properties
- Location: Central Coast, NSW
- The Problem: Initially enticed by low rates, the borrower lost their property possession to aggressive lender after delays
- Our Solution: A new facility provided to exit the predatory loan, stop default charges, and regain control of the property
I know, I know. I keep harping on about this, but it’s a drum I’ll keep beating because the consequences of ignoring it can be catastrophic. Don’t let rates dictate where you refer your clients. This isn’t just a philosophical stance; it’s born from real-world, often painful, experiences we witness in the private lending space.
Just last month, we stepped in to fund a borrower refinancing another private lender who had taken possession of their property. Let that sink in for a moment: taken possession. This wasn’t some hypothetical worst-case scenario; it was a devastating reality for a borrower who, like many, was initially attracted by the siren song of “cheaper rates and charges.”
The Allure of the “Cheapest” Rate
It’s completely understandable. In a competitive market, whether you’re a borrower or a broker, the immediate appeal of a lower interest rate is undeniable. It seems like a no-brainer – less money out of pocket each month, greater perceived savings over the life of the loan. This borrower, like countless others, walked into what they believed was a financially savvy decision. They secured a facility with a lender promising attractive upfront terms.
However, the reality of property development, business ventures, or even just life itself, is that things rarely go exactly to plan. Unexpected delays are almost a given. Permits get held up. Construction materials are delayed. Market conditions shift. In this particular case, the borrower faced unforeseen hurdles that impacted their ability to repay their facility precisely as scheduled.
The Broken Promises and the Aggressive Hand
This is where the true character of a lender is revealed. When a borrower encounters difficulties, a supportive and understanding lender will work collaboratively to find solutions. This often involves discussing extensions, restructuring payment plans, or even capitalizing interest to provide some breathing room. And, crucially, this was precisely what the borrower in this instance was promised.
They were assured that the lender would support them through these unexpected delays. They were led to believe that the flexibility and understanding they needed would be provided. But those promises, it turned out, were hollow.
Instead of the promised support, the lender adopted an aggressive approach. The discussions of extensions vanished. The understanding evaporated. In its place came demands, threats, and ultimately, the chilling reality of a lender moving to take possession of the security.
The “Back-End” Nightmare: An Arm and a Leg
What began as an attempt to save a few basis points on the interest rate spiraled into a financial nightmare. The “cheaper” upfront costs were dwarfed by the exorbitant charges levied on the back end. We’re talking default charges that accrue at eye-watering rates, exit fees designed to punish rather than facilitate, and a litany of other fees that nickel-and-dime a borrower in distress.
The borrower, having already endured the emotional and financial strain of unexpected delays, now faced the crushing burden of these punitive charges. They truly paid “an arm and a leg” just to escape the clutches of this predatory lender. The supposed “cost saving up front” was obliterated by the massive, unforeseen costs incurred during the term and, particularly, at the exit of the loan.
This is the critical takeaway, and it’s one that every broker and borrower needs to internalize: Always consider the lender’s conduct during the term and exit of the loan, not just the upfront rate.
Beyond the Rate: The True Cost of a Lender
So, what does “lender conduct” actually mean, and why is it so vital?
- Transparency and Communication: A good lender is transparent about their terms, including default clauses and exit fees, from the outset. They communicate clearly and proactively, especially when issues arise. A dodgy lender might obscure these details or make vague promises.
- Flexibility and Support: Life happens. A reputable lender understands this and is willing to work with borrowers who genuinely face unforeseen challenges. They will explore viable options for extensions or alternative payment structures, rather than immediately resorting to aggressive tactics.
- Fairness in Default: While default clauses are a necessary part of any loan agreement, a responsible lender will apply them fairly and reasonably. They won’t use them as a weapon to extract maximum profit from a struggling borrower. Dodgy lenders often see default as an opportunity to seize assets or levy excessive charges.
- Reputation and Track Record: This is where your due diligence comes in. Ask for references. Research the lender’s history. Look for online reviews and news articles. A pattern of aggressive behaviour, unfulfilled promises, or high numbers of seized properties should be a massive red flag.
- Understanding the “Why”: Why is a particular lender offering a rate significantly lower than the market average? Is it truly efficiency, or are they cutting corners in due diligence, or perhaps planning to recoup their “savings” through hidden fees and aggressive enforcement? Be wary of offers that seem too good to be true, because they often are.
Our Role in the Rescue: A $3.3M Lifeline
In this specific case, we were able to step in and provide a much-needed lifeline. We funded a $3.3 million facility, secured over three properties located on the Central Coast of NSW. This allowed the borrower to refinance out of the detrimental relationship with the aggressive private lender, stem the bleeding from the punitive charges, and regain control of their assets.
This wasn’t just another transaction for us; it was a rescue mission. It reinforced our commitment to responsible lending and our belief that relationships and reliable conduct are far more valuable than a marginally lower rate.
A Call to Action for Brokers and Borrowers
For brokers, this story should serve as a stark reminder of your duty of care to your clients. Your reputation, and ultimately your business, hinges on the quality of the referrals you make. Recommending a lender based solely on the cheapest rate, without thoroughly vetting their conduct and track record, is a disservice that can have catastrophic consequences for your client and, by extension, for your own credibility. Dig deeper. Ask the tough questions. Prioritize a lender’s ethical conduct and support systems over a few basis points.
For borrowers, be incredibly vigilant. Do not be swayed purely by the lowest advertised rate. Look beyond the headline. Ask detailed questions about default procedures, extension policies, and all associated fees. Get everything in writing. Understand the worst-case scenarios and how the lender commits to handling them. Seek advice from trusted professionals who understand the nuances of private lending.
Ultimately, this story is a testament to the fact that while upfront costs are important, they are only one piece of the puzzle. The true cost of a loan is determined by the lender’s character, their willingness to support you through challenges, and their fairness in the event of unforeseen circumstances. Choosing a lender based on these principles is not just about saving money; it’s about protecting your assets, your financial future, and your peace of mind. Don’t let the allure of cheap rates lead you down a path to losing everything. Choose wisely.