Unless you work in the real estate industry or another industry that requires large sums of money to be available quickly, you likely don’t know that much about hard money loans. A hard money loan is a type of loan that’s provided to an individual or company by another individual or company. To put that another way, they’re loans that people can obtain from a private entity rather than having to go through a bank. They typically come with slightly higher interest rates and shorter time limits for when they need to be paid back, but that’s not always the case. Here are the three reasons why you might consider taking out a hard money loan.
1. You Need Money Fast. One of the benefits of hard money loans is that they come much quicker than loans from banks. There’s a lot of red tape when it comes to borrowing from banks, and much of that bureaucracy is eliminated with hard money loans. Rather than checking your credit, private lenders offering hard money loans are more concerned with your assets. If you have enough to cover the loan and they liked their meeting with you, they’ll lend you the money you need.
2. Banks Won’t Lend to You. Sometimes people will find themselves in a situation where banks won’t lend to them. Perhaps they had a recent bankruptcy and banks won’t approve loans to them for a period of years. In such instances, if you have enough assets you might still be able to secure a hard money loan.
3. You Plan on Paying it Back Quickly. The final reason you might consider taking out a hard money loan is one that depends on your particular lending situation. Often times, people take out loans that they’re going to pay back over long periods of time, like 10 or 20 years. Such loans typically have low monthly payments and low interest rates, but by the time you’ve paid it all back you’ll have paid a significant sum in interest, but only because that interest was accruing for so long. In some instances, it makes more financial sense to take out a hard money loan with a higher interest rate because you plan on paying it back quickly. Even though the interest rate is higher, you end up paying less in interest because that interest rate is accruing for such a short amount of time. Hard money lending makes sense in such instances. An example of this would be flipping a home. You take out a hard money loan to buy the home, but you know that you’re going to sell the home quickly, and you can take the profits and pay back the hard money loan immediately.
These are just a few of the reasons why someone might consider taking out a hard money loan from a lender like Montegra Capital Resources. There are of course other instances where hard money loans make sense, but this should give you an idea of how they work and why you might want to take one out.