Strapped for Cash? The Pros and Cons of Hard Money Lenders

pros and cons hard money lenders fast cash loans approved loan

If you're someone who invests money, then you know about all the factors that go into play when trying to take out a loan. A low credit score, time constraints, and other factors can prevent you from getting the money you need. 

That's where hard money comes in handy. Although there are some drawbacks, it can be a great way to secure the finances you need. But how can you tell if using hard money is right for you? 

Keep reading to learn about some of the different pros and cons that go along with working with hard money lenders. 

What Is Hard Money? 

If you're unfamiliar with it, hard money is a type of short-term bridge loan. Most individuals use it as a last resort for investing money. It allows them to secure the finances they need without going through the requirements of other loans. 

Most hard money lenders are individuals, as opposed to banks. This means that there is often room for negotiation when agreeing upon the terms. As real estate moguls often use hard money, the property in question is most often the collateral in the agreement. 

What Are the Pros? 

Using a hard money lender to secure the finances you need can be a great option for many people. As mentioned, it's easy to get your money fast when using hard money, especially when compared to trying to wait for a bank to approve you for a loan. 

Hard money lenders make decisions based on the value of the property, as opposed to on your credit history. This means that if your credit score isn't ideal, you can get the money without a problem. In some cases, you may have to explain why you have the score that you do. 

Hard money lenders are also great connections to have. Oftentimes, they can introduce you to reputable agents, contractors, and stagers. They can also give you advice on deals. 

What Are the Cons? 

One thing that you'll have to be ready for is high-interest rates. As individuals are taking a risk in lending you money, you can expect the interest rates to hover between 10-15%. This can mean high monthly payments. 

If you're using hard money to help you flip a piece of property, issues that arise may force you to extend the loan past the traditional 12 months. Although most borrowers will approve an extension request, you can expect increased monthly payments or other penalties. 

Be Aware of the Pros and Cons When Working With Hard Money Lenders 

As this guide explains, working with hard money lenders can be good for people in certain financial situations. However, aside from the benefits of speed and accessibility, several downsides might make you want to check out other options. In the end, consider your situation to determine if a hard money loan is right for you. 

Have you decided on whether or not using hard money loans is a good solution for you? Before you go, take a moment and check out our other loan and lending blog posts for more helpful guides.

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