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Do you find yourself struggling to make ends meet? You’re not alone. In fact, a whopping 78% of Americans live paycheck to paycheck.

Even if you do have money left at the end of the month, unforeseen expenses like car repairs or dental bills can be catastrophic when you live on a tight budget.

That’s when a private money loan can come in handy.

What Is a Private Money Loan?

Essentially, this is any loan that is made by an individual or entity other than a bank. Also called “hard money loans,” they require collateral such as real estate, rather than relying on your credit score like bank loans do.

If you have poor credit, a private loan can be a godsend.

However, there are some pitfalls to watch out for.

1. Don’t Borrow More than You Can Pay Back

This may seem like a no-brainer, but it bears repeating. When you borrow money against your real estate, you will only owe the full amount of the loan at the end of the loan’s term. In the meantime, you will pay back the interest rate.

Interest rates from private money lenders can be higher than banks’ interest rates, so you need to be sure you can pay off the interest each month.

If the interest accumulates, you could quickly find yourself in worse financial straits than when you started.

It’s also important to put aside money toward the final payment of your loan. Otherwise, you could lose the property that you’ve put up as collateral.

2. Don’t Ignore Unexplained Fees

Unfortunately, there are hard money lenders out there who prey on people in precarious economic situations. When reviewing the terms of your loan, be sure that you understand each line item.

Yes, there will be fees associated with private money loans; however, your lender should be able to explain each fee in detail.

If the lender hems and haws when asked about a particular fee, or if you get the sense that anything is amiss, take your business elsewhere.

3. Don’t Be Scared by the Interest Rate

A private money loan will almost always come with a much higher interest rate than that of an unsecured bank loan.

And that’s OK.

Hard money loans are intended to be short-term solutions for people who need a quick fix of cash.

These loans are faster and easier than bank loans. In return for this speed and convenience, you’ll pay a little more in interest — usually between 8-12%.

Pay back the interest each month, and the total amount of the loan when the term ends, and you’ll have more financial security (and a greater chance of being approved for a bank loan).

4. Don’t Skim the Fine Print

You may hit a snag if you don’t follow the terms of your loan to the letter.

Some require biweekly payments. Others may offer a “teaser” interest rate and will charge higher interest after a certain time period has elapsed.

Make sure you fully understand all the terms and conditions associated with your private money loan.

Ready to Get Started?

Give us a call at Realty Resources Corporation to find out more, or to see if you can get funding today!

 

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