Hard money loans are short-term asset-based loans. Lenders, who issue hard money loans, don’t care much about your credit score, history and ability to pay off the debt. If something happens and a borrower can’t repay the loan, the lender takes the collateral.
Hard money lending is beneficial only in one case: when a person with a bad credit urgently needs the money and can’t get loan approval from the traditional lenders. The interest is much higher for hard money loans than for traditional ones. APR starts with 7% to 10% and can be as high as 200%. Upfront costs are usually 3 points higher than common lenders offer.
Therefore, before applying to a hard money lender, you should browse all possible offers from banks, credit unions, local and online lenders. The offer from a credit union for bad credit can be more beneficial than an offer from hard money lenders.
Still, if you have no other variant, a hard money loan can become your lifeline.
These are short-term loans. You must pay off the debt within one to five years. The loan term can be larger but borrowers try to pay off it as soon as possible because the interest tends to be sky-high.