It’s easiest to understand how hard money loans work by contrasting them with traditional loans or mortgages. Few people have the liquid cash on hand to simply buy a home outright. So, instead, they take out a loan from a bank or credit union. You purchase the property with the money they’ve lent you, then you make payments back to them over the course of ten to thirty or so years, all as part of a manageable debt repayment strategy.
Traditional mortgages come with some requirements. For instance, banks want to know that you’re a reliable lender. They can assess that by looking at your credit history, your personal track record when it comes to borrowing money (say, for college, or to buy a car). This is measured by your credit score.
Your credit score lets banks and other agencies know how likely you are to pay the money they lend you back, based on how reliably you’ve done that in the past. The higher the score, the more likely you are to pay your borrowed money back — and, crucially, the more likely you are to get a reasonable interest rate from the bank.
