A hard money loan is a common way to finance a real estate project. These loans can be used to purchase properties that banks will not finance due to their risky nature. However, what will happen if you default on any of these loans.
You can lose your property
If you are unable to make the payments on the hard money loan, the lender has the right to take possession of the property that serves as collateral for the loan. This means you could lose your home or business if you can’t find the money to pay off your debt.
You could be subject to legal action
Hard money lenders are more aggressive than traditional banks when it comes to collecting loans. If you don’t repay your loan, the lender will likely take legal action to cover your losses. This can lead to wage garnishment, asset forfeiture, and even bankruptcy.
Your credit will suffer
A hard money loan is a short-term, high-interest loan. This means that if you can’t make your payments, you’ll end up with a high-interest loan that will affect your credit score. This can affect your ability to get loans in the future and may even prevent you from renting an apartment or buying a car.
You will lose an important investment opportunity
Hard money loan financing is expensive. If you can’t pay your debt, it would represent a significant loss of potential income that could have been used to grow your business or fund future investments.
You can lose your capital
When you get a hard money loan, you usually need some form of collateral. If you are unable to make your payments, the lender has the right to sell this collateral to cover your losses. This could mean losing some or all of the equity you have built up in your property.
You will find yourself in a stressful situation
If you can’t pay off your hard money loan, things can get very stressful. You could face legal action that would require the hiring of an attorney and could result in bankruptcy or seizure of your assets. That’s why it’s so important for borrowers to make their payments on time; If they can’t, there will be significant consequences in the future.
It can Ruin your business relationship with the lender
If you have a good relationship with your hard money lender, it may be possible to work out a payment plan that allows you to avoid some or all of the consequences listed above. However, if you don’t pay your debt as agreed, it could ruin the relationship and make it difficult to borrow money in the future.
You may need a hard money loan again in the future
The consequences of not making timely payments with a hard money lender may prevent you from obtaining a loan in the future. This means that even if you manage to save enough capital for another project. It can be extremely difficult to get a loan without good credit and high-income levels.
As you can see, the consequences of not paying the loan are many, making payments on time will help you avoid all these unfortunate consequences and save your business.