First, let me explain what the term "private finance" means.
If you want to borrow some money for personal/business use, ideally you would approach the bank (considering low interest rates and security). The bank asks you to provide security in the form of a property/gold/any asset that you possess which can also be the stock/goods in case of a business. Now there can be two issues :
1) You *desire* to get a loan of say about Rs.1 Crore and the bank sanctions only say about Rs.50 lakhs after evaluating the security you provided.
2) Bank process is taking too much time and you *think* you cannot wait any more.
Any of the above two happens and then starts the panic mode. The mode which shuts down your ability to evaluate the situation with a straight mindset.
If you are lucky enough, you will find a relative/friend who is ready to loan you the required amount with minimum/no interest and without any security. (Voila! Your wildest dream comes true)
But considering the fact that we are not related to the likes of Ambani :) we are now in panic mode because we have already made huge commitments without any money at hand.
Now comes in the villain - The private financier !
He has been waiting for this opportunity when all doors will close for you and you *believe* that you are a loser.
You would never think of approaching him but he is right there and you would never realize how you ended up at his door. He walks in with his confident gait, making you believe that he knows the trade in and out and you are just another client. While secretly, he is hoping that you will fall for this and he can make his living out of you.
Private financiers have lot of money. So you would assume that its his business and just like banks finance, he finances privately. But you do not know that they are like the Dementors in Harry Potter movies. They will suck out every penny and make you so helpless that you will fear for your life.
Why I hate private financiers?
They will also take a security like a property/gold. They will transfer the property to their name and take possession of the gold. They will charge you with interest rates that are exorbitantly high (I know of cases where they charged interest rate which was 6 times that of the bank). They will make you believe that they are doing a huge favour on you. They will tell you they want the principle back in 2-3 months, hence you would feel that you have to bear the high interest rate only for a couple of months.
What you need to see through -
1) If the bank is not giving you more than Rs.50 lakh and if your relative is not Ambani, you need to understand that you need to work with Rs.50 lakh only. No matter what your plans are , no matter what you want to do with the money, you need to stick to this amount and have patience. If you want to grow your business, use this money and create your own capital. If you need it for a marriage, realize that short term glory is of no use if its going to cause long term pain.
2) The private financier is never looking for the principal amount. He wants you to never return it back. He wants you to pay interest as long as you can. And in turn he will make you feel obliged. With the kind of interest amount you are paying, he will have covered his principal amount in no time and then when you finally give up and refuse to pay interest, he will gobble up your security!
3) Private financiers do not appreciate paper work :) So basically even if you want to approach a court, all you have got is a paper which says that you have registered the property on his name and he has paid you the amount. There will be no mention that you are paying interest for that amount and that you intend to take back the property.
I have personally seen so many people fall for this. Its sad to see people who were once charged in life and wanted to make it large are now either struggling to survive or caught in the pangs of depression.
Its just mind boggling how the timing and situation can numb out your capacity to think through.But everyone of us needs to know about this and be aware!
PS : I might have missed out a lot of points and areas of concern. I cant stress on this point enough but I hope you guys are getting the gist of it.
Private Finance = NO NO NO !!
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