As a real estate investor, getting a traditional mortgage can be difficult. Even if you have good credit, you may not qualify for a traditional loan from a bank or credit union. In this case, some borrowers may look for hard money loans.

Hard Money Lending: What is it?

A loan in kind is a short-term loan secured by the property you purchase. Your bank probably doesn't: Alternative lenders, such as retail investors and private companies, who often ignore bad credit ratings and instead make judgments based on the assets they secure, are known as coin lenders. There are few hurdles and great risks, so this is not the best solution for everyone.

Benefits of hard money loans

Hard money loans have several benefits for borrowers. These are some examples:

• It is not uncommon for them to close much faster than standard loans. A few days are enough to complete a hard money loan.

• Their loans are less stringent than regular loans. Why? In the eyes of cash lenders, the value of the property is more important than the borrower's ability to repay.

• The borrower's creditworthiness and his debt-to-income ratio are less important to coin lenders. Coin lenders do not have as many rules as regular lenders.

For these reasons, coin loans can be an attractive option for those who do not qualify for a standard loan, but these loans also carry considerable risk, so it's important to keep an eye on all of their perils.

Disadvantages of hard money loans

The benefits of coin lending outweigh the risks, but borrowers need to understand both. Here are some of them:

• Interest rates are high. Coin lenders usually charge higher interest rates because they take more risk than regular lenders.

• These loans may require a larger down payment than traditional loans. This is again due to the risk taken by the coin lender.

• Traditional loans typically have much longer terms than hard money loans. Hard money loans must be repaid in 1-3 years, while standard mortgages take 15-30 years.

Coin loans can be expensive for all the reasons above.

Is a Fixed Deposit Loan a Good Idea?

Your current financial situation should play an important role in deciding whether you should apply for a cash loan. It can be helpful to review the pros and cons of a coin loan before agreeing.

Determine your repayment strategy before taking out a loan. You don't want to risk your loan collateral by missing a payment. In addition to using your pledged assets as collateral, not paying back your token loan can seriously affect your credit score. Either way, your financial situation will be worse than before -- and it may be harder to get credit in the future.