Real Estate Tips |6 min read

Hard Money vs. Private Money: How to Choose a Lender

There are several ways to purchase real estate. For instance, some people opt for a traditional bank loan. However, some investors seek other options, like hard money loans or private loans. However, it’s hard to decipher which loan option is right for you if you don’t know the difference between the two. So, read along to learn more about hard money vs. private money and how to choose the right lender for your investment.

hard money vs. private money

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Hard Money vs. Private Money

Instead of using a traditional bank loan, some investors search for creative financing options. For instance, you can find a private lender or work with Maryland hard money lenders to finance an investment property.


Hard money loans are asset-based loans that use the value of your property to determine the loan amount. On the other hand, private loans come from a person or company that loans you money based on terms that they set. 

Although the concept of hard money loans and private loans are similar, the two have several differences. Let’s go over some of the main similarities and differences between these loan options. 

Similarities and Differences of Hard Money vs. Private Money

At a glance, private lenders and hard money lenders are quite similar. After all, both options present unique financing opportunities for investors that may not qualify for traditional financing. However, here are a few similarities and differences to look into before choosing a loan. 


  1. Fees and Loan Interest
  2. Established Business Processes
  3. Lending Experience
  4. Reliability

Fees and Loan Interest

Both hard money and private lenders charge origination fees and loan interest. However, rates and terms may differ between the two options. For instance, depending on the lender, fees may include a flat fee, a percentage of the loan amount, or a combination. 

Additionally, loan interest may differ between the two options, although rates are generally high for both. After all, private or hard money lenders take on greater risk than traditional lenders since loans are secured by properties rather than creditworthiness. 

Established Business Processes

Hard money lenders are experienced real estate professionals with set processes and support. For instance, if you have questions about your loan or need help setting up a loan, you can speak with professionals for help or advice. 

However, private lenders may have little to no experience and may not know how to answer your loan questions. As such, if you’re an inexperienced investor, you may run into questions or issues that your lender cannot resolve. 

lending-experienceLending Experience

Another key difference between private and hard money lending is terms and experience. Hard money lenders are business professionals who handle real estate deals every day. This gives them tons of experience, which can help assist investors with loan options. 

On the other hand, private lenders don’t need any experience to issue loans. As such, they may not have enough knowledge to provide you with the best advice or assistance. 


Since they’re more established business professionals, hard money lenders are generally more reliable. After all, they likely work for a company that holds high standards and strives for client satisfaction. 

However, private lenders may be single individuals with nothing to lose, so they could back out of a deal more quickly. That said, now that we’ve gone over some of the main differences between hard money vs. private money, let’s review some of the pros and cons of each. 

Hard Money Lending: Pros and Cons

Hard money loans are collateralized by hard assets, usually real estate investments. While these loans are convenient and generally easy to obtain, it’s crucial to recognize the pros and cons

Benefits of Hard Money Loans

  • Quick Approval- Although it depends on your lender, hard money loans are typically easy to apply for. Additionally, they’re usually approved within a few days or weeks.hard-money-loan
  • More Organized- Compared to private lenders, hard money lenders are more organized and well-versed in loan processes.
  • Fewer Requirements- Compared to traditional lenders, hard money lenders may have fewer requirements. For instance, you don’t need to have great credit to take out a hard money loan.

Disadvantages of Hard Money Loans

  • Higher Interest Rates and Fees- Since hard money lenders take on the risk of your investment, interest rates are generally higher than other loans. Additionally, although it’s not always the case, they may charge a significant down payment.
  • Risk of Losing Collateral- Your investment property is used as collateral for a hard money loan. As such, if you cannot pay it, you risk losing your property. 

Private Money Lending: Pros and Cons

Private lending is exactly what it sounds like–money lent by a private person or organization. While private lending is similar to hard money lending, it’s important to recognize the pros and cons of each option. Here are some benefits and disadvantages of private money lending

Benefits of Private Money Loans

  • Fast Approval- Like hard money lenders, private lenders generally approve loans quickly. In addition, although terms differ, private lenders generally have fewer requirements and more flexibility than traditional loan options. 
  • No Minimum Credit Score- Traditional bank or mortgage lenders look at your credit history, income, and other factors to determine a loan amount. However, private lenders set their own terms, which means they may not even look at your credit score. 
  • No Requirements- Since private lenders set their own terms and rules, they may have no loan requirements. As such, you might be able to secure a loan without an investment plan in mind.


Disadvantages of Private Money Loans

  • Fees and Interest Rates- In some cases, interest rates and fees are higher for private money loans, although that’s not always true. Since private lenders set their own terms, they may charge lower rates than traditional loans. 
  • Short Payback Period- Private loans are short-term loans, meaning you must pay them back quicker than a typical loan. 

How to Choose the Right Lender for You

If you’re looking for a creative financing option for your next investment, you may look at the similarities and differences between hard money vs. private money. Although these loans aren’t suitable for all investors or real estate investments, it’s crucial to research each option and weigh the pros and cons. 

That said, choosing the right loan depends on your investment goals and needs. Luckily, Maryland Hard Money Lenders have the knowledge and expertise to help you achieve your goals. 

Our professional Maryland Hard Money Lenders can help walk you through the lending process to help bring your goals to life. Contact us today to learn more about hard money lending and the different types of loans we offer.

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