American Life Financial Corporation

Hard Money vs. Soft Money - What's the Difference?

If you are looking to take out a loan, there are two types of loans you will have available to you. A soft money loan is a traditional loan given by a bank. A hard money loan, also known as a private money loan, is a similar loan given by a private company. Though both have their advantages, soft money loans encompass traditional loans that have lower rates but are harder to come by.

Soft money loans are simple bank loans. You will need to show good credit and meet a number of requirements to secure this type of loan, especially in a volatile economy. Ultimately, though, soft money loans have lower interest rates and likely more favorable terms as well though the conditions will be very strict.

Hard money loans are private money loans. Rather than go through a bank, you secure financing through a private lender. Typically, these are used by businesses or investors who were unable to get a soft money loan for a variety of reasons, though it usually reflects their credit worthiness. In the case of hard money loans, a borrower’s credit worthiness may not be as important. Often, however, a private lender will require property equity as collateral for the loan. Hard money loans also tend to have shorter terms and higher interest rates.

Hard money loans are usually a back up option to soft money loans. Most borrowers will take out hard money loans because they were unable to secure a bank loan or take out a short term hard money loan (also known as a bridge loan) to keep them financed while they secure a long term loan.

It is important to remember that private lenders have very different terms from company to company. American Life Financial, which serves the Arizona-New Mexico area, is able to provide some of the lowest rates and favorable terms to residents of those two states.