Hard Money Loans are issued at a much higher interest rate than standard real estate loans, and are almost never issued by commercial banks. Due to this, these loans are sometimes issued by private individuals and are potentially very risky. Typically used in turnaround situations, short-term financing and to stave off foreclosures.
Hard money loans are generally considered loans of ?last resort,? and is initiated when a borrower with poor or limited credit histories can find no alternative to conventional financing, or when a borrower needs turnaround financing quicker than conventional sources can provide, such as in the case of foreclosure, bail outs, delinquency and loan restructuring.
Individuals who need funding loans for non-conventional property purchases, such as land, property in a rural area, land development or construction projects, etc. may be hard-pressed to get traditional financing, and are forced to turn to hard money lenders. Additionally, real estate investors seek out hard money loans because the loan can be approved and funded in as little as four days, an important factor when a property is being flipped and held for only a short time.
The hard money loan amount and interest rate assessed is based solely on the appraised value of the property and not on the borrower's creditworthiness or personal guarantee. The amount of the approved loan is based on Loan to Value (LTV) ratios that are often significantly lower than conventional real estate loans. Sometimes referred to as a ?bridge loan,? the hard money loan is intended for short term financing needs.
Providers of hard money loans are generally private investors or lenders, and the risk they take is significantly higher than traditional lenders. To mitigate that risk, hard money lenders charge higher interest rates (up to 18% p.a.) and real estate related fees (closing, appraisal, document preparation, recordation, etc.), and offer loan amounts based on a significantly lower loan-to-value ratio, sometimes as little as 65% of the appraised amount. Potential borrowers must have substantial equity in the collateral property, enough to cover the loan in the event of foreclosure.
Hard money loans, with their low LTV ratio combined with high interest rates and fees may seem unattractive to most consumers, but there are benefits such as a quick turn around of the loan, sometimes in less than a few days, and the elimination of the red tape and restrictions required by traditional lenders.
The most common sources of getting loans are through their bank, credit union, or other institutions. These sources usually allow you to have the loan pr-approved before you step into the show room. If this is the case it helps you know your reasonable limits before you start to negotiate. If you own a home, your bank may allow you to take out a home equity loan. This will allow you to tap into your equity that you have in your home. The interest rates are lower and your payments may be tax deductible. The obvious risk to this is the risk of potentially losing your house if you default on your loan. Make sure you don't place yourself in a position of unnecessary risk. Read the rest of the article to learn how to make your shopping for your auto loan more reasonable and ultimately safer for you.
New car verses old car? It really depends on your needs and your wants. A newer car will most likely have lower interest rates than an older car. Also consider in your equation that an older car will most likely have more repairs and maintenance than a newer car.
You can also try to get the loan directly through the dealer's credit department. It will most likely cost you more, but this may not always be the case depending on who you are dealing with.
Don't be fooled or dazzled by the numbers the dealers throw at you. Here's what you'll need to know:
Your trade in: Sell it personally and don't trade it in. You'll get less for it if you trade it in. If you do decide to trade it in at the dealer make sure you don't tell them until the very in. Otherwise they'll internally adjust their offers to make them even more profit while giving you the impression that they are "helping" you.
Length of the Loan: this varies. Some institutions are offering seven to eight year loans that usually charge more interest than the shorter three or four year loans. Take that into consideration as well. You don't want to end up paying $40,000 dollars for a $12,000 car that at the end of seven years will be worth $2,000. It makes sense to calculate the length verses the potential value.
Here are some important things to remember when purchasing your new car:
(1) Knowing what your credit report says about your credit history. (2) Identifying what kind of car you actually need. (What you can afford). (3) Shopping around to get the best deal. The auto dealers vary in price and service. (4) Knowing the "real" final cost of the car. (5) Making prompt payments on your car once you have purchased it so you can build up your credit rating.
Both Unsecuredloan & Bob Tharten are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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