The term “hard loan” usually refers to cash that is not obtained through a mortgage, credit card, or home equity line of credit (HELOC). Like personal loans, hard loans are generally unsecured loans that have a higher interest rate and are typically backed by collateral, such as home equity, and come with a balloon payment to the lender.
These loans generally require a lot of financial discipline on the borrower’s part, including planning and knowing how much money will be needed to pay back the loan. If there is no planning, there is a risk of default. However, unlike many other types of loans, there are pros and cons to having a hard loan.
Interest Rates
While these loans carry a higher interest rate than most other forms of loans, the difference is usually well worth it. This is because the borrower pays back the loan in full, making the total cost lower than what would be expected if the loan was made with a regular interest rate.
Steady Repayments Works Well for Borrowers
Another advantage of hard lending is that it is almost impossible for the borrower to get behind on loan, especially if the borrower can show that they have a steady income and can make payments on the loan. This means that while the borrower may pay a slightly higher interest rate to borrow the money, they can still have their money paid off if they make all of their monthly payments on time.
Get Funds
For some borrowers, a hard money loan can be a great way to get some additional funds, especially in an emergency, without having to use credit cards or wait for a personal loan to become available. However, anyone looking to get these loans should first consider other financing options before signing on the dotted line.
Some Things to Know about these Loans
The downside to the hard loan is that the borrower has to be in good credit to qualify for a loan in the short term. Many banks and other lending institutions view borrowers who have a bad credit history as a higher risk than those who do not have a record of defaulting on any loan. Therefore, if a borrower has a low credit score, they may have a more challenging time getting these loans from banks or other lending institutions.
Some people worry about taking out hard loans because they fear that it can hurt their credit.
