A hard money loan is a type of loan that is secured by the value of a property. In most cases, the credit history and score of the borrower is less important than the property's value. These types of loans are not made by traditional lenders.
Many hard money loans are made by private individuals or companies that are willing to take a risk that the consumer does not default. The interest rate on a hard money loan is generally higher than interest rates from a traditional lender, leading some individuals or companies to see this as a type of investment. If the borrower defaults, the lender receives the property that secured the loan. If the borrower pays off the loan, the lender makes money in interest.
One example of a situation where a consumer may seek out a hard money loan is if his property is at risk of foreclosure. The consumer's credit may be too poor to qualify for any other type of financing, but he still has a bit of equity in their property. A hard money loan can help stop the foreclosure process and give the consumer the opportunity to stay in his home. Consumers who have bad credit, but need financing for a short amount of time, may also seek out a hard money loan.