Whether you need a loan to invest in real estate or start a new business, determining which lender is right for you is important. Our Titan Funding team can guide you in making an informed decision. Let’s take a look at the similarities and differences between hard money and private money lenders to see which is ideal for your borrowing needs.

What Is a Hard Money Lender?

Hard money lenders are licensed entities that work outside of traditional financial institutions like banks and credit unions. These lenders typically base their hard money loan or bridge loan offers on the borrower’s hard assets. In this case, the lender will use any tangible asset you own to determine your loan amount. A hard money loan is a short-term loan, meaning the repayment term can last between six to 18 months. There is usually a fast approval window for you to receive this loan, often available the same day.

What Are the Pros and Cons of a Hard Money Lender?

When conducting business with a hard money lender, you can rest assured knowing they are knowledgeable and organized because they are a licensed company. These lenders can also guide you in making investments by offering a second opinion. The quick approval process of bridge loans provides swift funding and allows you to use the money immediately. 

It is important to consider whether a bridge loan makes financial sense because although it is convenient, it comes with higher interest rates and fees. This is because the lender can charge you what they want based on the risk they will take from providing you a hard money loan. Additionally, your assets are used as collateral, meaning you risk them seizing your property if you fail to repay the loan.

What Is a Private Money Lender?

A private money lender can be an individual, such as a friend or family member, or a business, like an online company, that provides loans to borrowers with minimal requirements. These lenders often base the loan terms on their own criteria rather than a set guideline, meaning it is on an individual basis. Some private money lenders may have a minimum credit score requirement, while others will still work with you if you have poor credit. The repayment term and interest rate vary based on the agreement you and the lender reached.

What Are the Pros and Cons of a Private Money Lender?

A benefit to receiving a loan from a private money lender is their full transparency. Since the loan is determined individually, the lender may offer financing options for your repayment or establish a low-interest rate if they aren’t concerned with making a profit. A loan from a private lender typically provides a short approval window because it has different requirements than a bank or credit union might have. Although a verbal agreement may confirm a private loan, getting a financial agreement in writing is always best.

High or fluctuating interest rates for repayment are one of the potential drawbacks to working with a private money lender. In this case, the lender can determine the rate based on what they deem an appropriate repayment amount or use your credit score against you if it is below the minimum amount. Despite the speed of receiving a private money loan, the repayment period may be as short as six months which can put you in a financial bind if you are unable to repay.

Similarities Between a Hard Money and Private Money Lender

The most significant similarity between hard money and private money lenders is the fast approval time for borrowers when applying for a loan. Some traditional brick-and-mortar financial institutions have long approval windows, taking up to 30 days for you to receive funding. Both lenders offer loans outside these traditional companies, giving them the flexibility to provide investors with fast cash. 

Unlike a mortgage loan from a bank that may have a 30-year repayment plan, hard money and private money loans both have short repayment periods. This convenience from either type of loan can benefit investors looking to make a quick profit, such as flipping a residential home or rental property. If you’re unable to qualify for a traditional loan, a hard money or private money loan may be your best bet for securing a loan.

Differences Between a Hard Money and Private Money Lender

The method in which both lenders determine your loan amount differs considerably. A hard money lender bases the loan amount on your hard or physical assets, and a private money lender often uses your credit score. A private money lender could use your W2 tax form to confirm your income and determine the amount. Or, if they are a family member, they may not require any of your financial history at all.

In general, a hard money lender is experienced and licensed, ensuring you’re working with a trustworthy company. Since a private money lender could be your friend, they might lack financial knowledge, leaving you at risk of receiving a loan from an unreliable individual. 

Choosing the best lender depends on how you intend to utilize the money from the loan. For example, suppose you intend to purchase a used vehicle because you need a reliable commuter car to get to work. In that case, a private money loan from an individual will suffice. However, if you are contemplating real estate investment, borrowing from a hard money lender may make more sense from a business aspect because of the invaluable advice they can give.

Find the Right Lender That Meets Your Financial Needs

Our expert team at Titan Funding in Boca Raton, Florida, can help you find the right lender to support your personal and financial growth. We can discuss our various bridge loan options to determine which fits your financial situation best. Ready to secure funding for your next investment project? Contact us by completing our secure online form, available 24 hours a day, seven days a week, and a team member will contact you soon.

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