Have you attempted to get a loan with a traditional bank, only to be shot down? If so, don’t worry – you definitely aren’t alone. There are several reasons your loan may be rejected by a traditional bank, from poor credit history to employment issues and more. This is when a private money loan may be the best solution.
Since back in 2007, the number of private money loans provided by third-party lenders (not banks and other financial institutions) has increased by approximately 50 percent. If you decide that a private money loan is a smart option for you, you need to do your research first. In order for these efforts to be successful, you need to avoid the most common mistakes with these loans, which are found here.
Not Seeking Pre-Approval First
You should never make a commitment to a big financial investment without first seeking pre-approval for a loan. This includes anything from purchasing property to a car or anything else. However, you may be surprised to learn how many people actually sign a contract before it has been pre-approved.
Before you enter into an agreement such as this, you need to receive pre-qualification documentation from a trusted lender. You can even request a proof of funds letter to really “seal the deal” and let the seller know you are serious. If you don’t do this, it may create a stressful situation. After all, think about having made an offer on something you want to buy, only to later find out that your loan request was rejected. You can avoid this by ensuring you always get pre-approved, first.
Not Knowing Exactly the Amount You Need to Borrow
With a private loan, you are going to make monthly repayments on the amount you borrowed, plus interest. However, with a hard money loan, your monthly payment is only going to be the interest. The total amount of the loan is due at the end of the term of the loan.
The more you borrow, the higher your payment will be based on your interest rate. If you wind up borrowing more than you really need – or more than you can afford – you may struggle to make the payments each month. Be sure that you don’t experience this issue by figuring out how much you need to borrow and how much you can afford, first.
Avoiding Private Money Loans Because of the Interest Rates
In most cases, you will find the interest rate for private money loans are in the eight to 12 percent range. These are higher than a bank, but there’s a good reason for this.
Private lenders are taking a higher level of risk than banks that enter these agreements. After all, this is the investors own money and there is a certain amount of trust involved. Also, with a private hard money loan, you have access to the money you need right away. Banks require you to go through a pretty long and stringent approval process.
As you can see, opting for a private money loan just makes sense in a number of situations. While you may be hesitant, it can be quite beneficial if you avoid the most common mistakes listed here. Being informed is the best way to ensure you get the best results from your loan. If you’re looking for a hard money loan in Arizona, contact Barrett Financial Group at 480-999-6183.