Updated Oct 12, 2021

Hard money loans are designed to help borrowers get a sum of money quickly. They are considered short-term loans, and typically need to be paid off between one and three years. Unlike other loans, they are not based on the borrower’s credit score. Instead, the property is used as collateral. When you enter a hard money loan, it’s important to have an exit strategy in mind that ensures you can pay off the interest rate. Here are some suggestions so you can be proactive about repayment.

  • Use Another Loan for Repayment

One of the biggest advantages of a hard money loan is a fast turnaround. The most important aspect of your application is property ownership, so lenders won’t spend months scrutinizing your financial situation. A loan from the Small Business Administration, for example, will take months to get approval. You can speed up your purchase of property in Arizona with a hard money loan and then pay it back with financing at a lower interest rate.

In the case of business ownership, you can use the money to buy the property you have your eye on while you wait to be approved for another loan. You can then refinance the hard money loan with another loan that has a lower interest rate and a long-term repayment plan.

  • Sell the Property

Hard money loans can help you edge out the competition for purchase, so it has a special appeal to property flippers. Since flippers in Arizona aim to resell their purchases quickly and at a profit, a hard money loan can benefit them. The repayment schedule of the typical hard money loan allows them enough time to make their renovations, resell the property, and then pay back the loan. This short-term use makes a hard money loan worthwhile, even though the interest rate may be higher than other loans.

  • Use a Mortgage to Refinance

A hard money loan is useful as a stopgap, due to its advantages with flexibility and speed of approval. When you get one with this in mind, a mortgage can be a wise repayment strategy. With the loan, you can spend time renovating the property or working to meet the requirements of another loan. Refinancing with a mortgage will reduce the cost of financing since the interest rate will be lower on a mortgage. Before repayment is due, borrowers can also work to resolve issues that may prevent them from being eligible for traditional loans, such as:

    • Foreclosure
    • Bad Credit
    • Bankruptcies
  • Use a Subprime Loan to Refinance

For a hard money loan to be worthwhile, you should have plans to pay it off as soon as possible. If your credit or another factor prevents you from qualifying for traditional loans, you should turn to subprime loans for refinancing. Subprime loans will have more lenient requirements for borrowing, but higher interest rates than traditional loans. However, they are still useful for repaying the money borrowed from a hard money loan.

  • Use Assets From Your Business to Pay It Off

If you are using your loan to find loans or investors for your Arizona business, you can seek to pay it back with profits from that business. If you don’t plan to sell the property and want to avoid taking out another loan, you can use this plan to pay off your hard money loan. Taking on a hard money loan gives you time to complete the steps necessary to appeal to investors so that you will be able to comfortably pay it back when the time comes.

Contact a Capital Fund 1 Lender Today!

Capital Fund 1 provides reliable, transparent help with all your financing needs. We serve many communities in Arizona including Tucson, Flagstaff, and Phoenix. We also have offices in Denver and Colorado Springs, CO. 

Submit a loan application online today so that you can meet your property ownership goals as soon as possible.


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