Some lenders believe that offering the lowest rates is the surest path to market dominance. But competing solely on price is a shortsighted strategy—one that sacrifices sustainability for short-term gains. Instead, success comes from differentiation, trust, and long-term relationships.
Price Alone Fails to Differentiate
When I was a private lender, I knew my borrowers had options. They could source cheaper funding elsewhere, yet they chose to work with me. Why? Because they trusted me. They knew I would close on time. They understood I would deliver the terms I promised without the dreaded bait-and-switch tactics that plague this industry. This reliability built my reputation and fostered loyalty. Competing on price would have commoditized my business, reducing me to just another name in a crowded field. Instead, I focused on being a trusted partner—a strategy that earned me more referrals and repeat borrowers than any low rate ever could.
The Risks of Price-Sensitive Borrowers
Attracting borrowers purely through low rates often means inheriting higher risk. Price-sensitive clients may prioritize short-term savings over stability or a long-term relationship. They’re more likely to undervalue the professional guidance a private lender provides. These borrowers are rarely worth the operational headaches they bring. By focusing on reliability and service, I built a portfolio of clients who valued more than just the rate of their loan.
The Dangerous Spiral of a Price War
Some of the largest lenders in the country are undeniably low-cost. But their success isn’t just because of their pricing—it’s because they offer a seamless borrower experience and have built strong relationships. These lenders have invested in technology, processes, and people to deliver reliability and value alongside competitive rates. I know someone who offers fix-and-flip loans at 7% interest—remarkably low for the industry. Yet, despite the attractive rate, his phone isn’t always ringing. Why? Because borrowers want more than cheap loans; they want trust, service, and a partner who delivers.
When lenders chase the cheapest price, they risk triggering a race to the bottom. Margins shrink, service quality declines, and the entire market suffers. Private lending thrives on trust and expertise, and focusing solely on cost undermines these fundamental pillars.
Understanding What Borrowers Truly Value
Borrowers will often say that a low rate is important to them, and of course, they don’t want to waste money. But deciphering what else they value is much trickier. In my experience, what borrowers often truly seek goes beyond the headline number—they value confidence, reliability, and the assurance that their deal will close smoothly. Many borrowers have been burned by lenders who promised one thing but delivered another or failed to close on time, costing them far more than they saved on a slightly lower rate. Listening closely and understanding what borrowers truly need—speed, transparency, and partnership—sets exceptional lenders apart.
Sacrificing Long-Term Growth
Being the cheapest lender also limits a company’s ability to grow. Unsustainably low prices erode the resources necessary for reinvestment in the business—whether in improved customer service enhancements or technology that streamlines the borrower experience. Growth isn’t just about attracting more borrowers; it’s about building better systems and relationships. The lenders who thrive in the long run focus on differentiation, not discounts.
Building a Better Future for Private Lending
Private lending isn’t a commodity market. It’s a relationship-driven industry where value is derived from trust, expertise, and service. The lenders who resist the temptation of price wars and instead focus on their unique strengths—reliability, professionalism, and partnership—will not only survive but lead.
Borrowers don’t just want the cheapest loan; they want peace of mind. They seek lenders who understand their needs, follow through on their promises, and offer a partnership they can rely on. In an industry defined by nuance, the race to be the cheapest is not only unwise—it’s unsustainable. The future belongs to those who deliver value, not just a low price tag.
