Knowing the Cons of Hard Money Loan
There is the always the “cost associated” with the hard money loan. In comparison to a traditional business loan, a hard money loan will be much more costly. You can expect to pay a fair amount more in interest rate in exchange for having the money faster. Consider the higher interest rate as the cost you pay for the convenience. As an addition, up-front fees will add to the cost of the loan overall and it may do so considerably. This can end up making the loan financially debilitating in the long run.
Extensions are hard to get on hard money loans. If you get to the end of your interest term and need an extension, you may not get it. In that case, the entire balance of your loan will be due immediately. If you do not have the money, it gets even worse for you. Most hard money loans will foreclose on your property much faster than a commercial lender. Essentially, if you don’t pay you could be out of your property as fast as the law will allow. Thus, there are considerable risks when taking on a hard money loan.
Lastly, a hard money loan will likely have a “prepayment penalty”. In other words, paying off the loan early can often cost you as much as 3 months of interest. Even if you don’t think you will pay off early, it is nice to know you can. With a hard money loan, the option to pay off the loan early without considerable consequences is just not there in most cases. In the end, the cons linked with a hard money loan must be fully considered long before you decide to take on the awesome responsibility of such a loan.
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