What Is a Special Finance Auto Loan?

Perhaps you have seen the term ‘special finance auto loan’ online when you were shopping around for car loans. If you are not familiar with the term, what it means is that auto loans are available to people with poor or bad credit. The most recent statistics tell us that sixty percent of all consumers have less than perfect credit. These consumers are not typically allowed to borrow money from traditional banks because banks check credit ratings and flatly refuse to loan people with bad credit money. People with bad credit are considered to be ‘special’ cases, so hence the term special finance auto loan was contrived.

Special loans for auto finance are widely available today. As the economy has taken another turn for the worse, more and more people are struggling financially. Many people are falling behind on their bills and cannot pay off their credit balances on time. This leads to the fall in their credit rating, making it impossible to buy a new car, as traditional banks refuse to lend them money. However, thanks to the special finance auto loan the typical consumer who is having money troubles can drive the car of their dreams, as many lenders have emerged over the past couple of years offering to lend money to ‘high-risk’ individuals.

While a special finance auto loan may be convenient, it does has its pitfalls. The interest rates for this type of auto loan can range anywhere from 5 to 26% which is quite high and higher than what is charged by traditional banks. Another negative aspect associated with the typical special finance auto loan is the fact that the down payment required for this type of loan can range from 20 to 50%, which is also high.

Another thing that happens with the typical special finance auto loan is the fact some car dealers will inflate the prices of the cars they offer under this type of financing. This type of dishonest dealer will take a car worth $5000 and jack the price of it up to $10,000. The dealer will then require a down payment of 20% and finance the balance at 25%. The unfortunate buyer (who is often quite desperate) will then be tied into a contract with a very high interest rate on a car that is only worth half of what they paid. Plus, quite often this buyer will default on the loan which will ruin their credit even more. If the buyer is able to make the payments on the special finance auto loan they will have paid double the amount of what they would have had to pay for the same car purchased from an honest dealer at a fair price.

For the consumer with very poor credit, a special finance auto loan can seem like a God-send. A person will be able to borrow the money they need to buy a car. However, they will be paying a high rate of interest and will also have to pay a large down payment. The lenders offering this type of loan are making a whole lot of money, lending money to people with poor and bad credit, and they seem to be appearing out of nowhere as more and more websites are being added to the Internet daily.

Commercial Hard Money Loans – Your Absolute Last Resort To Finance Commercial Real Estate

You should consider getting a commercial hard money loan only after you have reached the conclusion that you absolutely will not qualify for a conventional commercial real estate loan. The decision, although tough for most commercial funding recipients, is pretty easy. Either let go of your commercial real estate or accept the terms provided by your commercial hard money lender.

Commercial hard money lenders are essentially your last resort to finance commercial real estate. You are receiving one thing that’s extremely useful in exchange for the relatively high cost of a commercial hard money loan. That extremely useful thing is time. Time for repairs, time for restoration or whatever the difficulties that you’ve gotta surmount are. Whether it is taking your business back to profitability, reducing your debt, time to continue leasing out your commercial real estate, or to restore your own personal credit. We’ve seen so many borrowers end up letting their egos get in the way and turning this event into something it’s really not.

The truth is that, it’s basically an act of courage since you are actually facing the issues you confront head-on and dealing with everything at once, so you are eventually able to to resolve it. And no matter how bad it really is, you can take some pride in that. A whole lot of people today have a tendency to hide from reality and let their problems overwhelm them.

Remember the old saying: “comparing apples to apples”? You simply can’t compare commercial hard money loans to traditional bank financing, which you may have been eligible for 3 or so years ago. However, these days, you’ve really gotta be realistic and compare your intended financing to your existing alternatives. Here’s what your choices are: 1) Team up with a business partner. 2) Relinquish your entire business. 3) Lose your commercial real estate to foreclosure or other mishaps.

Let’s say you own a commercial property that’s worth $2,000,000 and you owe $500,000 on it. So, you’ve got $1,500,000 in equity that you could possibly lose versus paying for high-priced commercial hard money loan. Or say you take on an incompatible business partner who just because you’re pressed for time and need the money. Now, you have at risk whatever equity you’ve got in the property, and then you create further legal difficulties by needing to dissolve your business relationship with that business partner. And if things eventually work out with your business partner, you may even need to trade off a lot more with your business partner than you would otherwise spend in fees to the lender.

Most commercial hard money lenders charge you 6% on the front-end of loans, which is clearly pretty darned expensive. When you’re dealing with terms like that and you want an additional $500,000 to bring the total loan balance to $1,000,000. You’d have to pay $60,000 in fees–in comparison with losing $1,500,000. It is pretty difficult, yet straightforward. So, please don’t let your ego get in the way of your commercial real estate financing decisions. Just face your issues head on, and deal with them one by one.

Hard Money Loans – The Basics

What is hard money used for?

A: Hard money is generally used as a bridge to allow the borrower or property to be brought into compliance with conventional financing guidelines or sold. It is generally a short to medium term solution (1-5 years) and it is used for all types of real estate: commercial, retail, office, industrial, raw land, construction, land development, multi-family, single family homes and manufactured homes.

Q: Why would anyone borrow hard money when banks charge lower interest and less fees?

A: There are many reasons why a borrower would choose to use private or hard money over less expensive institutional financing, but the following will address the most common uses. Speed of funding is the most common reason — banks typically take a minimum of 45 days to fund a residential loan, 60-90 days to fund a commercial loan, and 120 or more days to fund a construction or development loan. Private money, however, is typically funded within two weeks, and can be funded as quickly as 24 hours in certain cases. Another type of project suitable for private money is a property that either lacks cash flow to meet bank requirements or requires physical improvements. Banks will not typically fund a loan secured by a property that requires rehabilitation prior to its use, and thus the borrower will obtain a private money loan to purchase and rehab the property, and then payoff the private money loan with conventional financing. Sometimes a borrower will purchase a commercial property that has no tenants. Banks will not loan on such properties but private money will provide a bridge loan to purchase the property and provide the borrower with time to lease up the property. Once the leases are in place and have been “seasoned” for at least 12 months, a commercial lender will refinance the private money loan with institutional financing. Banks are also prohibited by law from making most types of raw land loans, so private money is practically the exclusive source of financing for raw land. Equity in the subject property or other properties owned by the borrower is another factor. For example, Coppercrest Funding http://www.coppercrestfunding.com loans based on the value of the property and not the purchase price, and is also able to cross-collateralize the loan with other properties, so we sometimes lend 100% of the purchase price.

Q: What are the interest rates?

A: Private money rates generally range from 12 to 14%. The rate is determined by looking at a combination of factors: (a) LTV ratio, (b) strength of borrower, (c) condition/desirability of property, (d) actual cash-in or real equity contributed by borrower.

Q: What fees are involved?

A: Hard Money Lenders charge a loan fee generally equal to 3 to 5% of the gross amount of the loan. There is also charge typical lender fees, such as a document preparation fee, a loan processing fee and an application/inspection fee. There are also third party fees involved, including escrow fees, title insurance fees and account servicing fees. CopperCrest Funding doesn’t not charge hidden junk fees, but some lenders do, so make sure you read the paperwork or have an attorney take a look at it for you.

Q: Can the fees be paid from the proceeds of the loan?

A: Yes, so long as there is enough equity in the project. Most often, all fees other than the application fee are paid from the loan proceeds.

Q: Is there a pre-payment penalty?

A: Generally hard money loans have a 3-6 month minimum interest requirement. For example, with a 6 month minimum interest clause, if the borrower repays the loan in 4 months, there is a penalty of two months interest. If the borrower repays the loan after six months, then there is no pre-payment penalty.

Q: How quickly can a private money loan close?

A: CopperCrest Funding have closed loans the same day when presented with a complete loan package, but we typically take one to two weeks. Since hard money is coming from private sources, and every deal is unique it is important to ask about closing timelines on a case by case basis, and each lender is different.

Q: Is an appraisal required?

A: Typically hard money loans require an appraisal, but if there is not enough time to obtain an appraisal and there are good comparable sales information then the lender can waive the appraisal requirement.

Q: Why do they call it “hard money”?

A: We have heard many explanations, but the most common answer is that the lending is based on “hard” assets as opposed to the borrower’s credit or income.

Hopefully this article answered some of your questions about hard money. If you are in a unique situation whether you have a great one of a kind investment opportunity or are facing a foreclosure because of an unexpected happening, hard money may be the solution for you. Remember, just like with any loan or mortgage, ask a lot of questions and read the paperwork.