Pros and Cons of Private Hard Money Lenders
Private hard money lenders are often sought after by home buyers and small business who wants some hard money (cash) to jump-start a financial transaction. Some people are ok with hard money lending while there are those that are against to this type of financial transaction.
If you are thinking of availing of this type of transaction, here are the things that you need to remember.
The Good Side:
• Quick Cash Out – hard money lender knows that their advantage over other financial institutions is time. If you have the papers, you will be able to avail of your needed money in a one week or even in just 48 hours if you are dealing with local hard money lenders. National and online hard money lenders will take time but it’s always in one week time frame.
• Documentation – another great thing about hard money lending is that you will be able to avail of this type of loan without too much documentation. Usually for hard money lending, all you need to show is that you have a source of income so that you can pay back the loan that you are trying to avail. On the other hand, other institutions such as banks will require you tons of documentations especially for businesses that you can get easily discouraged.
• Virtually No Credit Check Needed – banks and other financial institutions will need you to go through credit checking. This will determine your credit score and will even deny you if you have a bad credit standing. On the other hand, hard money lenders will never let you go through credit check. The cash is available fast since you don’t have to go through credit check.
The Bad Side:
• High Points – although hard money loan will give you cash fast, they will deduct a lot from your initial loan. That means you have to pay upfront before you can get the loan. Private hard money lenders will usually require five to nine points up front. This is convertible to percentage which means you will have to pay up front from 5% to 9%. For example, you are trying to loan an amount of $100,000. If the hard money lender requires 5% upfront, you will get the money in a week but you will only receive $95,000 since the $5,000 has already been deducted.
• High Interest Rate – aside from high points, the interest rate might discourage you. The high interest is caused by high risk of offering cash as a loan. The usual interest rate of this type of loan could go up to 15%. That might be less compared to credit card debts but if you apply that to 15% of $100,000, you will be paying $15,000 a month just to ensure your loan will stay in the same principal.
These are the things that you need to consider before getting yourself into hard money lending. It’s a fast processing type of loan but it’s a high risk loan which means this type of loan comes with higher interest.