Why Would Anyone Ever Borrow Hard Money Loans?

Why would someone ever borrow a hard money loan? Most assume it’s due to having bad credit or when money is needed fast. So, what is a hard money loan? This is any non-bank loan from a private source, primarily used to purchase or refinance “hard” assets such as cars and real estate. These are very different from payday loans, which are more short-term, consumer loans. Real estate investors are using these loans to make money, and also to make their cash go further. There are many other reasons why someone would pay the higher interest rates associated with these loans.

The biggest reason is the rapidness of the funding of these loans versus a bank loan. Another reason is due to the strictness of bank underwriting standards after the recent real estate crisis. Even qualified borrowers are deemed unqualified and cannot obtain loans against hard assets such as cars and real estate. Another reason people borrow hard money loans, is to use them to buy out a partner or family member in a hard asset such as real estate. Often, the interest paid on a hard money loan is much less than the percentage someone else may be costing you in a piece of real estate. These are just some of the reasons why someone would borrow at higher interest rates. What other reasons would you add to this discussion?

Posted by Corey Dutton, Private Money Lender