Unsecured Hard Money Loan

When ample credit isn't available, an unsecured hard money loan may be a potential borrower's best bet at purchasing an expensive item that is above their current cash flow capabilities. This is especially true if the borrower has a low credit score, a marred credit history or a current delinquency on his or her record. An unsecured hard money loan, or a bridge loan without collateral, differs from other bridge loans in that the money from the lender is not secured by a piece of property. This will often allow the secured bridge loans to offer more competitive interest rates than the bridge loans with no property as collateral, however if a borrower needs the money this type of financing is available to her and allows her to make necessary payments or purchases.

Typically, bridge loans require a personal residence or commercial property to act as collateral should the borrower default on the payments. This property is assessed to determine the amount of financing available to the potential borrower. However, in the case of an unsecured hard money loan, other factors are considered in offering financing options to the borrower. The appeal of bridge loans, whether collateralized with a home or secured by some other process, is that an individual with poor credit or a questionable financial history still has a way to get cash in the case of an unexpected medical emergency, sizable car repair or other unforeseen expense. If someone has a recent bankruptcy, the chances of getting financed through a standard lender are slim to none. With the opportunity to apply for an unsecured hard money loan, the unexpected financial event does not have to threaten the individual's entire future.

The application fee for an unsecured hard money loan is usually more expensive than applying for a loan at a standard lending institution. There are many reasons for this disparity between fees. Because bad credit lending companies deal primarily with individuals who habitually do not make loan payments or are well below the poverty level, their liability and possibility of financial loss is much greater than a standard bank or credit union. To pad their budget against these inevitable blows, the bridge lending professional will charge a nonrefundable fee for applying for a line of credit with his or her institution. This application for a hard money loan will not include some of the specifics seen in standard financing applications from a bank or credit union. Bridge lenders do not typically run a credit report, because the credit score has no bearing on the financing likelihood. The application will require proof of income in the form of check stubs or banking statements. If the bridge loan is secured by the property put up for collateral, then verification of income may not be necessary. However, if the loan is collateralized by a car or on the anticipation of a pay check, then income verification or proof of ownership is definitely going to be required.

If the unsecured hard money financial package is made with the anticipation of a pay check, then the financing will not exceed the amount of the coming pay check or the amount of the monthly salary of the borrower. The advantage of this type of loan is not just that it negates the need for pristine credit, but also bypasses some of the time consuming regulations that banks have to follow. Typically, a bank financing package can take up to a month to complete, longer if it is to buy a home. An unsecured hard money loan can be processed in 24 hours. If the borrower has direct deposit or Internet banking set up on their checking account, the money could be deposited directly the same day as approval. This is so helpful if the borrower is waiting to get their car from the mechanic or has had his or her water, electricity or gas turned off in their home. "And it shall be, as with the people, so with the priest; as with the servant, so with his master; as with the maid, so with her mistress; as with the buyer, so with the seller; as with the lender, so with the borrower; as with the taker of usury, so with the giver of usury to him." (Isaiah 24:2)

The income tax paper work from a borrower indicating a tax return can also be offered as "collateral" for an unsecured hard money loan. The financing is still considered unsecure, because the potential income tax return, though verifiable and for sure, is still not in the hands of the borrower at the time of the lending agreement. The borrower is asked to sign an enforceable contract bestowing the return to the lender upon filing and processing. Emergencies do not wait for the IRS to send the check. For this reason, these types of lending packages are ideal for individuals who just need to buy a little more time. The amount loaned does not exceed the amount of the income tax return, and usually includes the fee assessed for processing the application. These types of loans are getting fewer and fewer in recent years, now that the Internal Revenue Service offers electronic filing and automatic deposits of income tax returns.

With unsecured hard money loan comes higher interest rates than those offered by standard lending institutions. There are many reasons for this. The increased risk of default drives the need for higher interest rates. At the end of the day, the bad credit lending company is in business to make a profit. There are no profits in loaning money to people who don't pay it back. Increasing the interest rate can compensate for financial loss resulting from individuals who fail to pay back their loans.

Add to: File Insurance Business article Teen Photo Images