There are quite a few possible situations in life where you might feel an overwhelming need for urgent cash. Whether it is starting a new business, buying that car that you have always wanted or finishing higher education or getting professional degrees, the need for money can make its presence felt at any point of time. In usual scenarios, you would either prepare for this event with foresight and have enough money saved away so that any sudden requirement would not be a problem. At other times, you can also approach a bank, credit union or any other kind of financial institution or lending agency to try and get a loan application cleared. There are, however, certain situations where either option is not available.
Consider these situations — you might be in foreclosure, and need to raise money to counter your financial difficulties on an immediate basis. You might be interested in buying property, the value of which cannot be determined by usual methods of appraisal. You might want to refinance your mortgage to raise money. You might have made some questionable financial decisions in the past, rendering your credit scores damaged. You might be a student with no immediate income, but still facing a need to have ready cash at your disposal. In all these cases and quite a few more possible ones, traditional borrowing options like banks are not likely to approve a loan application. Banks and other lending institutions have strict criteria that you need to satisfy to qualify for a loan, and none of these cases are conducive to that. The solution, then, is to opt for hard money loans.
Raising money from private hard money lenders is often perceived to be a kind of last resort for people in need of cash. You should consider private hard money lenders when you have exhausted other, more traditional approaches of raising money and found that your financial scenario is not amenable to these methods. If you are in such a fix, exploring the option of hard money loans is something that might come as a welcome relief for you, and finally put you in a position from where you can play out the right financial moves and secure your future in a better way.
Exploring Hard Money Loans
Hard money loans are, in essence, asset-based loans where the investor seeks maximum protection for their investment by providing a cash loan, with the borrower putting up a piece of personally owned real estate as collateral. Typically, a private hard money lender will ask you for a recent appraisal of a property you own, and disburse a loan which is worth a fraction of the value of that property, with the property ownership title deeds as collateral for the loan in case of non-repayment. You put up property that you own and receive money immediately, without having to resort to processes like background checks and credit checks in most cases.
Since these are last resort loans, the terms can be significantly more demanding than those on traditional loans. Typically, interest rates are much higher, tending to 15% or more. Repayment schedules are also notably less relaxed, with most lenders imposing a maximum of five years time for repayment. Since the risk factor is higher than usual loans, private hard money lenders tend to keep these structures in place to reduce risk.
So what, you might ask, are the advantages? For one, this can be one of the only remaining options left for you to get a loan if you are in one of the situations portrayed above. Following this route enables you to find a way out of financial doldrums with a substantial amount of cash in hand, and you can incorporate better planning to repay the loan. Also, when you are in a situation where quick turnaround is key to your plans, this type of loan, which gets processed in a week or two, might be exactly what you need.
Having these relevant bits of information about hard money loans will help you arrive at a more informed, insightful decision, and might help you restructure your finances in the long run.