Hard money loans are one of the most common types of loans for real estate investors with bad credit. This is because it can be very difficult for an investor to obtain a traditional loan if they do not have good credit or spotless borrowing history. There are a handful of upsides to hard loans, however, there can also be many potential downsides.

Pros of Hard Loans

There are a handful of positives for hard loans. These include more available funds, the opportunity to improve credit, an easy application process, and a good entry point to financing. One of the main pros of hard loans is a lender will often offer much more money than a traditional loan. This is because their potential gains are very high if you cannot make payments. Another positive of hard loans is the opportunity to improve credit. Whenever you take out a loan, you have the opportunity to improve your credit simply by making your payments reliably and on time. A third positive for hard money loans is an easy application process. Because the lender does not care very much about your credit, they are willing to offer a much easier application process. Hard loans can be an easy entry point for those new to financing and who would like to build their credit for the future.

Cons of Hard Loans

There are many downsides to hard loans. These include only short-term loans offered, the risk of losing the property, and a high-interest rate. The first downside to a hard loan is only short-term loans are available. Most lenders will not offer long-term hard loans, because the risk for them goes up if the loan is long-term. Another negative of hard loans is the risk of losing the property. Because hard loans are a somewhat risky endeavor, there is a high risk of losing the property in question. A final downside to hard loans is a high-interest rate. Hard loans unfortunately have some of the highest interest rates in the industry. This is because the risk to lenders is much higher than for traditional loans, due to the omission of credit when selecting applicants. This means you may be stuck paying a very high-interest rate on your hard loan.

By considering the positives and negatives of hard money loans, you can decide for yourself whether a hard loan is right for you. While not without their downsides, hard loans are a great option for those who struggle to obtain other means of financial assistance.