Every financial product fills a need. Hard money loans are no exception to this rule. You have to put up collateral if you want one. However, that collateralization unlocks real advantages that make hard money loans very attractive under the right circumstances. Knowing when this is the case ensures the best results when borrowing from a hard money lender.
What Are 3 Signs You Should Consider Hard Money Loans?
Here are three signs you should consider hard money loans:
You Want a Fast Approval
Sometimes, you need money in your hands right away. For example, you might have an unexpected expense. Alternatively, you might encounter a promising opportunity that won't stick around. Hard money lenders give faster approvals than their conventional counterparts. Primarily, this is because they won't scrutinize an applicant's proof of income and other financial documentation to the same extent. Instead, they are protected by collateralization. If you seek a hard money lender, Investopedia says you can expect to receive 50 to 75 percent of your collateral's value, which is lower than the 80 percent you can expect from a conventional lender. This difference makes fast approvals possible by giving hard money lenders increased confidence they can recoup their losses in case of default by selling the collateral for more than what they lent out in the first place.
You Can Pay the Loan Soon
Hard money loans tend to charge higher interest than conventional loans. Fortunately, you can mitigate this problem by paying them ahead of schedule. This makes hard money loans perfect for people who flip houses. After all, they can borrow to buy the property, renovate it, and then pay their loan using the proceeds from the sold property. Skillful house flippers can get the job done in months, meaning they face relatively little exposure to risk.
You Have a Low Credit Score
Creditworthiness is whether a borrower can be trusted to repay borrowed money. There are various ways to evaluate it. However, Experian states that credit reports and scores are the most popular. Unfortunately, you might find it hard to borrow if you've ever experienced financial woes because the stains on credit reports and scores last for years. Putting up collateral is a reliable way to bypass this problem. Better still, you can borrow more using a hard money loan than most other collateral loans, meaning you can do more things.
Borrowing money should always be taken seriously. You can protect your interests by educating yourself about financial products. Luckily, numerous resources exist to help consumers understand hard money loans. Don't hesitate to make good use of them.
For more information, contact a hard money lender near you.