It’s important to understand how a hard money lender works.
There are countless types of loans that borrowers can take out, and it’s important for anyone looking to borrow money to understand each of them so that they understand their options. A borrower can take out a traditional loan from their bank. Such a loan will come with an interest rate and a period of time over which the loan has to be repaid. If payments are missed, the interest rate might climb, but if the borrower pays on time, then there’s generally a fixed amount of money that they will pay back in the end. Then there are other types of loans that generally fall under private or commercial money lending, like bridge loans and hard money loans.
If you’re thinking about taking out a hard money loan to make some type of purchase, perhaps a house or office space, then it’s critical that you understand exactly how a hard money lender works. A hard money loan is different than a traditional loan in that the loan isn’t contingent on the borrower’s credit rating. Instead, the loan is backed up by real assets. In practice, this means that a person looking to take out a hard money loan has to be able to show that they have enough assets to match the amount of the loan. That way if the borrower is unable to pay back the loan, then the lender will seize their assets as their own. If a borrower wants to take out a $20,000 hard money loan to put them over the top for the down payment on their new house, then they’ll need to back that $20,000 up with real assets. That might mean putting their new car down as collateral, or something else of equal value.
As you can see, a hard money loan is actually quite different than your traditional loan. A hard money lender doesn’t work like a traditional lender, checking your credit score and determining whether or not they think you’ll be able to pay back your loan. Instead, they want to know what kind of assets you have, how much those assets are worth, and whether or not those assets are going to be able to cover the amount of money that they’re going to give you.
Hard money loans from firms like Private Client Investments are also a bit different than traditional loans in that they usually have to be paid back quite a bit quicker. Most hard money loans have to be paid back within the next six months, and many times they have to be paid back within only three months. They have a relatively high interest rate, but the total amount of interest that ends up getting paid isn’t usually very high simply because the borrower typically pays back the loan quickly. Either way, hopefully this has helped you better understand how this type of borrowing works, which in turn should be able to help you determine whether or not a hard money loan is both possible and right for you.