Hard Money Loans Versus Traditional Loans The Facts


Most people define hard money loans as capital that one can quickly get. Meaning that if you do not wish to go through a traditional loan which may take time to process or even end up not being approved, you should consider taking a hard money loan. The current hard money rates range from 7.5 percent to 15 percent. This is why you may want to shop around for which money lender has the best rates that will not put a strain on your business. The good thing with big money lenders is that they are flexible, and rarely do they say no. Therefore, if you see a lucrative opportunity that you do not want to pass you by, you can opt for private money lenders.

Anyone with a surplus amount of cash sitting on the bank can become a moneylender with little return. This makes acquiring private money loans an easy process. Whether you are looking for capital to start a business or expand it, you can easily find cash from people around you. Talk to friends, family members, or colleagues who can lend you the money. If they find your project a worthy investment, they will be willing to loan you. However, it is best to have an agreement on the terms of loan repayment to avoid conflict.

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There is much that we don’t know when it comes to money, and most of us know even less when it comes to loans. You probably have plenty of questions when it comes to loans. Among them are probably “how does a hard money loan work” “what is a private money lender” and much more. There’s a chance that even if you’ve heard of hard money loans before, you don’t actually know what they are. Conversely, you may not know about the existence of hard money loans, even if you need one. Here’s one thing you should know in advance: if you’re wondering “how does a hard money loan work”, however, you probably are in need of one. So it’s important that you identify not only how these loans work, but how you can get one and what the pros and cons of hard money loans really are. The last position you want to be in financially is the one wherein you need this kind of loan but don’t know how to get one. With that being said, let’s look into the mechanics of hard money loans, and how a hard money lender can help you.

How Does A Hard Money Loan Work?

First, let’s look into the pressing question of “how does a hard money loan work?”. There are many reasons why you may not want to go through a traditional mortgage lender to get the loan that you need. You may not be able to get approved, and even if you do the process of being approved does not happen quickly. As such, if you find yourself in need of money within a tight time frame — or bouncing back from a hit to your credit — a traditional lender won’t work for you. Another issue with traditional lenders is that there are very strict restrictions to your loan. For example, someone looking for a traditional business loan has to have been in business for two years, have at least $250,000 in annual revenue, have good personal and business credit, and be cash flow positive. These standards can be impossible to meet even when you’re in an otherwise good financial state. By contrast, hard money lenders lend based on the collateral that you place, and are less concerned with repayment than traditional lenders. Often times, the collateral in question is a property. Usually, this property comes with 30 to 50% equity, and as such the investor is protected. There are many reasons aside from the looser restrictions and the quicker process that people prefer hard money loans to traditional loans. Let’s think about what those reasons might be.

Why Do People Prefer Hard Money Loans?

We’ve seen above the most obvious reason why people prefer hard money loans to traditional loans. Some of the other reasons have to do with the fact that collateral can be easier to “prove” than credit. Many of us have poor credit due to mistakes long past; we also have collateral to place for a hard money loan. The fact is that hard money loans also have a shorter duration period than traditional loans. Some may want that longer duration period because it helps them feel prepared. But the fact is that a shorter duration period can be a positive thing; it means that the loan isn’t hanging over your head for as long as it would be otherwise. A traditional loan can have a duration period of one to 20 years. A hard money loan, on the other hand, usually has a duration period of up to five years. At the same time, it’s important to remember that hard money loans have higher interest rates. Typically, the interest rates of a hard money loan starts at 15%, 18%, or higher. They also have lower loan to value ratios. No loan comes without any amount of responsibility. But in total, the facts tend to indicate that hard money loans are a better option for a great amount of people.

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