Pros and Cons of Hard Money Loans

Hard money loans may have widespread applications, but all lenders follow similar execution methods. This type of lending has also been a favorite for people with bad credit or anyone in urgent need of funding. Below are some pros and cons of using commercial hard money loans:

Pros of Hard Money Loans:

• Quick loan processing:

  The traditional loan providers may take weeks to process a loan and give you the money you require. However, a hard money loan takes a few days, and sometimes about 24 hours to mature. This can be a significant benefit to anyone in urgent need of cash.

• Easy application process:

  The application process for the hard money loans is quicker than that of conventional lenders since the borrowers deal directly with a private or an individual lender. The lenders use their opinion to determine your eligibility for a loan, which is contrary to the banks and other lenders who use the tedious underwriting process. They also rely heavily on the value of the property used as collateral rather than focusing on the borrower’s credit rating.

• Flexible repayment terms:

  The lender provides flexible repayment terms to the borrowers. For example, the lender may allow the borrower to pay the interests alone during the tough months to avoid overburdening them with large payments.

Cons of Hard Money Loans

• The rate of interest is high:

  This is one of the biggest disadvantages of the hard money loans. The interest rates for the loans are far much higher than the ones charged by conventional loans.

• Hard to find: 

  The hard money lenders are hard to locate depending on your place of residence. The online hard money lenders are easier to find but most of them have restrictions on the states they operate. The state regulations require the hard money lenders to obtain a license that allows them to work only in the states where they do business.

• Low loan-to-value ratios:

  The loan to value ratio involves determining how much money a borrower will get. Most hard money lenders only provide a loan to value ratio of 60% or 70% meaning that the borrower has to get financing from other sources to fund their project.