hard money loan

What Exactly is a Hard Money Loan?

While hefty student loan debt or crippling interest rates often steal the spotlight, loans aren’t all bad.

When you’re strapped for cash or need to make a big purchase such as a real estate investment, loans can be a way to get the money you need, fast.

But if you have a poor credit history, low credit score, or need money fast, a traditional loan might not be an option.

A hard money loan offers a solution. Keep reading to learn what a hard money loan is, who they are right for, and how to get one.

What is a Hard Money Loan?

When you apply for a traditional loan, your credit score and financial history are important. Lenders will want to look at both in order to determine whether or not they can give you the loan you want in the amount that you need.

But a hard money loan is different.

Rather than requiring a high credit score or strong credit history, hard money lenders offer loans based on collateral. The agreed value of your collateral will determine how much you can borrow.

If you are unable to repay a traditional loan, your lender can take you to court, your credit score will plummet, and your ability to borrow in the future will likely disappear.

But if you default on a hard money loan, the consequences are simpler; your lender will take possession of the collateral.

When are Hard Money Loans a Smart Choice?

While hard money loans might sound like a great way to protect your credit, or to secure a loan if you have a poor credit history, there are some drawbacks too.

One major drawback is that they often carry high interest rates. They are also often very short-term loans, lasting anywhere from one to five years.

Still, these short terms and high-interest rates may still be worth it if you fall into one or more of several categories.

The first category is those who need money fast. Because normal loans require lengthy applications, credit checks, and sometimes even reference checks, it can take a while to get your cash.

But because collateral is being used, hard money loans are often quick to obtain.

Another category is those who have a poor credit score or history. Again, collateral acts in place of those things to allow you to get your loan. If you’re facing financial hardship and need money, this might be your only option.

Where Can You Get a Hard Money Loan?

Once you’ve decided that a hard money loan is the right choice for you, it’s time to find a hard money lender.

A hard money loan may come from individuals or a corporation. Some corporations cater specifically to individuals looking for loans for a certain purpose, such as real estate. Others simply specialize in hard money lending in general.

Making Smart Loan Decisions

Whether you’ve decided that a hard money loan or a traditional loan is right for you, it’s essential to make smart, informed decisions about borrowing money.

After all, defaulting on a loan can mean losing your collateral, destroying your credit history, and more.

Check out this guide to learn what you need to know to make smart loan decisions.