Hard money lenders are not as well-known as the conventional lenders, but their popularity is on the rise. This is because more and more people are giving this option a chance. As with any loan, there are advantages and disadvantages. On the one hand you will be able to get the money you need quickly, but on the other hand you will end up paying much more than the actual loan cost. If you ate thinking about going down this road then there are a few things you should know.
What is hard money lending?
Hard money lending is basically the lending of hard money, hard money in this case is money that is hard to come by. This basically means that if you apply for such a loan then the chances that it will be successful are not that great, especially if you have a bad credit history. Soft money, in contrast, is money that you can get hold of easily through a loan. The terms and conditions of these are much more flexible so more people are eligible.
Know the laws
Hard money lenders generally deal more with investments rather than funding anybody who needs a loan. This means that they will do everything they can in order to get their money back with the profit that comes with it. It is common knowledge that many people who take loans cannot pay the amount back and there are new laws in place that can help them. This makes life for hard money lenders very difficult and you can imagine the potential losses that they can suffer. As a result they are very clued up on the laws that govern borrowing and lending. Before you think of taking such a loan, ensure that you will be able to pay it back so that you don’t have to be stuck with even more debt.
The easy way out
As bad as it may seem, hard money loans are a good way if you are looking to get money quickly. Even though there are rigorous rules and conditions attached, it is worth it if you know that you can pay the loan back. This is a particularly good source of finance if you are looking to embark on an investment.
Times are tough for a great number of people around the world, and as the months go by some are finding it more difficult than others to become financially stable once again. Many formal lenders will be weary of loaning money to those who have struggled to get out of debt or those who don’t have any steady prospects. This is where hard money lenders come in.
Soft and hard money
Each industry has its own jargon and when it comes to investing money is referred to as hard or soft. Hard money is the term referred to those loans that are fixed, restricted and difficult to apply for. In contrast, soft money allows for providers to give more flexible loans, so more people can apply for it. In a nutshell, hard money is those loans that hard money lenders make available.
Who are the hard money lenders?
Hard money generally comes from private sources or individuals and will not really be very popular at all with more commercial lenders. Because these loans are from private lenders they cannot afford to lend large sums of money to just anybody who needs a loan. Hard money is often very difficult to apply for and comes with more rules since they have to ensure they get their money back.
How does this work?
Hard money lenders tend to lend far less money than other lenders. When it comes to real estate, for example, they will lend up to or less than the amount that the house is worth. Should the house be repossessed and need to be sold then the resale amount would cover the hard loan and the lender would recoup their loan.
The legal downside
The law has started doing more for the consumer, especially when it comes to loans and paying them back. Hard money lenders have had to contend with such laws, and as a result have had to deal with financial loss because borrowers couldn’t pay back the loan. In light of this, you can understand how the loan conditions such as interest, late payment fees and loan periods. This ensures that the lenders reduce the risk of not getting the full amount back.