Private personal loans are loans from entities that do not provide personal loans to the public in general. Rather, their clientèle is limited to a specific group of individuals. The most common example of private personal loans is that granted by one person to another i.e. a brother to a sister. This is assuming the lender is not holding himself/herself out as a lender to the public in general.
This article will discuss several types of private personal loans. Bear in mind the enumeration is not exclusive. Also, as a general rule, some private lenders do not need to charge interest or comply with the floor (minimum) rates that public banks and lenders must charge. Although they still need to comply with usury laws, under threat of administrative, civil and even criminal sanctions.
Private Banks (Excluded)
These are banks that have an exclusive clientèle. These individuals have high net worth. They usually specialize in investing and asset management. These banks are not actually lenders. They are more of an investment house for those with money, NOT lending institutions for those without money.
A credit union is a non-profit organization that has the sole purpose of providing loans to its members. Common examples of credit unions are employees associations, farmers union, etc. The membership is limited to members of a certain demographic and location i.e. same employer, farmers in town X, fishermen in town Y, etc.
You need to be a member in good standing and for a specific period of time in order to get a loan here. Because credit unions are non-profit, they only charge low interest rates.
Employers can also consider private lenders to their employees. This is because they limit loans to the same. Some loans are just an advance on a salary. This allows an employee to get an advance on his/her salary. In some cases the employer will actually provide personal loans to long time and regular employees. The interest rates are extremely low and sometimes there is no interest, provided the employee pays the full amount or instalments on time.
Most insurers have a specific insurance policy that allows the insured to loan an amount, provided they have met a minimum number of premium payments. Needless to say, only those who are insured and have the applicable clause on their insurance policy can take out a loan. Because it is your money, the interest rate is very minimal.
These are not necessarily loan sharks. There are some private entities that are not publicly incorporated but provide loans to other individuals. These loans are usually on referral basis or limited to residents of a certain locality. This way, the collection is assured one way or another.
Just like any other loan, one must pay a private personal loan when it is due. Take note, private lenders may not report directly to credit bureaus. But they can sell your account to a collection agency; in which case, the damage to your credit report will be substantial.