Perhaps you’re probably wondering “Why would I get a hard money/private money loan to payoff other debt such as credit cards, personal loans, medical bills, tax liens, or judgements”? The reason is because hard money loans typically offer lower interest rates and can help increase your credit score. The debts listed above often have interest rates of 20% or greater, while Marquee offers hard money loans starting at 7.99%. According to Money.com, your credit score is determined by “35% payment history, 30% amount owed, 15% length of history, 10% new credit, and 10% types of credit used”.
What’s your loan scenario?
Since 30% of your score is based on amount owed, and hard money loans don’t appear on your credit report, you can potentially see a big score increase. For example, if you have $50,000 in credit cards, $30,000 in personal loans, and $20,000 in medical bills, your total debt is $100,000. If your total credit limit is $200,000, your utilization ratio of 50% can negatively impact your score. If you obtain a hard money loan to pay off the $100,000 debt, your utilization ratio will go down to 0%, which can increase your score.
As consumer purpose loans don’t have prepayment penalties (you can pay off the loan at any time with no additional fee), one can hypothetically take out a hard money loan to consolidate debt and then refinance back into a conventional loan once qualified.