Private Money Loan | What is a direct hard money lender? | Law Fundix

What is a Private Money Loan?

Private money loans – or sincerely private money – is a term used to describe a mortgage that is given to an individual or corporation by means of a private agency or even a wealthy individual. The organization or the person is called a private money lender.

Because a private lender is in the business primarily to make money, it predictably puts a high value on minimizing risk. A private lender considers several factors prior to extending credit.

Private Money Loan | What is a direct hard money lender? | Law Fundix

Private Money Loan Licensing | Best Private Lenders for Mortgage

However, private lenders are subject to the banking restraints and controlled by the prevailing federal and state usury laws. Loans issued by these private lenders are not subject to some of the typical controls.

What sets of laws that really upset the private money lenders are the restrictions on the amount a lender can make out of loans without first having a license to practice banking. Most of the private money lenders are not tied to a bank or any similar money lending institution, which is an exception of having to obtain a banking license. Only when they have issued a specific number of loans, the states impose licensing on the different lenders.

Dangers of Private Loans

Private money loans have risks both for the lenders and the borrowers.

It is imaginable that the borrower may misjudge the priority of getting to know the lender; where the money is flowing from can make so much difference. Typically, it will be from a small group of individual investors throughout the country who were lured into a juicy opportunity. What is important, though, is checking the quality of the funds - the stability of the loan.

This may lead to disastrous consequences on a borrower if they had started the process of relocating into a rental apartment and their loan defaulted. Borrowers can also find themselves laden with unmanageable burdens of debt because they failed to understand an arrangement on a loan.

Money Lenders also take some high risks like Law Fundix you know that. That is why lenders need to know precisely just how reliable the borrower is before they can agree to lend to him. In many instances, the borrowers default because the money they borrowed has been used in some risky investments or opportunities that never show up. In due course, the lender must realize that he is not going to recover the loan amount in its entirety, even though he may pursue other court actions.

Additional Means for Money Lenders

The Commercial Banking & Credit Analyst (CBCA)® certification course is the most in-demand program amongst financial analysts and can be attained by any individual.