Private money and hard money are similar in many ways. Both of them are loans based on asset. They are also both backed up by a real property than the financial qualifications of the borrower. Another thing is that they are also from non-traditional lending institutions. There is just one thing that makes the two differ from each other. While the hard money comes from an institution managed by an organization and are usually licensed to operate, private money are run by private individuals, as the name suggests. They may be a relative, a friend, a co-worker, or someone referred by a trusted person. Both hard money and private money functions as source of funds for a borrower’s point of view.
Private money can be considered as more informal than hard money. Every details in private money is open for discussion with the lender like the amount of loan to be borrowed, terms of payment, loan duration and even interest rates and other agreements that may seem important in closing the deal. This will depend on how close your relationship is with the borrower.
Private money is also cheaper than hard money. This is because hard money funds are usually from other institutions that is why they have to increase interest rate and create other fees to earn a profit. Private money eliminates the borrower from other charges and higher interest rates because the source of funds is directly from the lender.
One thing is “hard” about private money, they are hard to find! This is not because they are illegal but because they only choose whom to trust with regards to lending their own money. They don’t have the funds to advertise their financing capability. They are usually known through referrals and word of mouth. Hard money lenders advertise their business because the more they have clients, the more they are earning. They also have the funds to advertise their business through websites, flyers, on-site locations, etc.
Whatever option you choose in funding your needs, whether it may be private or hard money, always make sure to face your responsibility as a borrower. Always pay on time to avoid trouble with the lender. Remember that you are destroying your image if you run from your obligations and there may be no more chances for you to seek financial help in times of need.
