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Do You Need a Hard Money Loan or a Private Loan?

private loans

If you’re looking to purchase a piece of real estate but need a loan to do so, you might have some questions about which financial route you should take. After all, there’s not just one kind of loan to choose from. Better yet, each kind of loan has its own pros and cons.

The main two loan categories to consider are hard money loans and private loans. They have the same purpose, but they work in different ways, making them useful in a variety of situations.

What Is a Hard Money Loan?

Hard loans come from loan companies that have set terms for their loans, making it somewhat like a bank. There are criteria you must meet and rules you must follow in order to obtain and successfully pay back these types of loans. However, they may not always be as strict with their criteria as a bank would be.

These loans are generally short term and are usually paid back within 24 months. They’re also only available for non-owner occupied properties which makes it a popular option among home flippers. They are based more on property assets than credit history, which can be useful for someone who has been turned down by a bank due to poor credit in the past.

What are Private Loans?

Private loans are another flexible option for loan-seekers. This is because they come from a private citizen or company rather than a bank. In this case, you don’t have to follow the strict rules set by banks or loan companies. It could come from a friend, someone in your family, or just someone in your community who wants to invest in your project. There may be more room for negotiation in this situation and it’s ideal for someone with low credit or who might need a little wiggle room with their payments in the future. However, it also depends on finding a private loaner who is willing to back you.

Which Should You Choose?

There really isn’t a single answer to this question. Realistically, you could go either way assuming that both options are available to you. Not everyone has the option for private money loans and may need to rely on a hard money loan company for help. Both choices can help to avoid a bank if you are struggling with your credit, although a private loan might offer you more flexibility. The best thing you can do is look at what options are available to you and find out what will be easier to manage with your financial situation.

For more information on private loans and hard money loans, rely on GW Private Capital.

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