The advantages of fixed-term loans
It offers immense benefits not usually offered by big banks or lending institutions. Some of the benefits include:
- Minimum Conditions: To qualify, a borrower must meet a short list of criteria, while a bank has many set conditions that must be met. This can include income history, credit report, etc. The entire process can be lengthy and the borrower may not even be approved in the end. In contrast, these loans are fairly simple and straightforward. If the cash lender determines that a borrower’s targeted real estate investment is excellent value and the borrower has at least 20% equity to bring to the deal, the investor is likely to qualify.
- Fast Loan Approvals: You can get it approved much quicker than traditional banks or financial institutions – which can take at least 3-4 weeks. In many cases, a borrower can receive approval and funding within a week – especially if the requested documentation is provided in a timely manner. The main reason coin lenders can approve loans quickly is the short list of required documents and the smaller size of the lender’s organization that doesn’t have to deal with the bureaucracy of banks.
- Forgiving on Credit History: It will also be more forgiving on your credit history. When you apply for loans from leading financial institutions, your creditworthiness becomes one of the most important factors to be checked. If a borrower doesn’t fit into a bank’s strict “loan box,” the chances of qualifying for the loan decrease significantly. In the case of coin lenders, credit history doesn’t matter as much as the value of the asset and the borrower’s equity — or “skin in the game.” As long as both meet the lender’s expectations, you have a good chance of getting the loan.
- No Prepayment Penalties: Another key advantage is the lack of prepayment penalties. If you take out a loan from a large financial institution, you will most likely be hit with a prepayment penalty if you pay off the loan before the end of the term. You can avoid these fees by opting for hard money loans. It’s not hard to find a coin lender willing to lend you money with no prepayment penalties burned into the term sheet.
Even though hard money loans offer the advantages mentioned above, they are not entirely without disadvantages. Some of the disadvantages of hard money loans are:
- Higher interest rates. Since the lender is taking on additional risk by lending on a property that is unbankable and a borrower who would not qualify for a bank loan, there is usually a higher interest rate involved. This is an important factor to keep in mind when deciding whether or not to take out a term deposit.
- Short-term loan. If you are looking for long-term financing, you may find it difficult to get a hard cash loan. If you need financing for more than 12-18 months, a traditional bank may be a better choice.
If your real estate investment is in your area, applying may be much easier as you will find many lenders willing to offer it. However, before you jump the gun and apply to all available lenders, remember that you should spend some time researching them to find the best lender.