Here’s why Defaulting on a Hard Money Loan Is a Bad Idea

The biggest reason why you should never default on any loan is that it tarnishes your reputation. Whether you borrowed cash from a sibling, friend, or a financial institution—they’ll never lend to you again if you default. 

And if the loan amount was very high, you might even have to deal with the matters in court. In short, defaulting comes at a cost—penalties, being blacklisted and dealing with legal trouble. 

Most individuals assume that it’s a lot easier and safer to default on a hard money loan, since there are no banks involved. We’re here to tell you otherwise. 

Let’s take a look at what can go wrong if you default on a hard money loan:

What happens if you default?

As stated above, hard money loans are offered by private lenders and companies. These companies are not even remotely linked to government agencies or the central bank. This is seen as an advantage by most people who take hard money loans lightly.

However, the hard money loan contract clearly states that in case of a default, the interest rate will significantly increase. You’d be surprised to know that your monthly payment may even double altogether! 

As a small business owner or a real estate agent, this can get quite unmanageable. The purpose of this clause is to give the borrower one last chance to pay. The next step is foreclosure. 


Let’s say you owe your lender a total of $100,000 and have paid back $60,000. Only $40,000 remained to be paid and you decided to default. 

In cases like these, your lender will take immediate steps for foreclosure and you’ll also lose the $60,000 you paid. You can choose the fight the foreclosure in court, but that means additional legal costs that go beyond what you can afford. 

The borrower can also avoid foreclosure by giving back the property. This is known as ‘deed in lieu of foreclosure.’

Credit score

Your hard money lender will definitely not lend you again. To make it worse, this may even leave a red mark on your credit report. Credit reports are a detailed record of all your payment schedules, payment periods, and defaults.

It’s a lot easier for the credit score to come down then improve again. There’s very little you can do to improve your credit score drastically. This also means you will find it hard to qualify for insurance, loans, and rented apartments in the future. 

To make things, even most corporations look at your credit score before offering you a job. Think it through before defaulting next time!

To get the most reliable hard money loans in Norfolk VA, contact Global Capital Partners Fund LLC.  They are the answer to all your commercial real estate financing needs! 

Categories: Finance

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