May 27, 2022


Hard Money vs Private Money: What’s The Difference?

Hard Money vs Private Money: What’s The Difference?

Hard money and private money are very similar, but not identical. There are major differences between two that borrowers need to know before working with a hard money lender to get a loan.

In this post, I’ll lay out the differences between hard money and private money, and help you determine which loan is right for you. I will:

  • Define hard money and private money
  • Explain the key differences between them
  • Give examples of hard money lenders and private lenders
  • Show the pros and cons of each
  • Help you decide which one is best for you

Let’s get started with this post:

What Is Hard Money?

What Is Hard Money?

What Is Hard Money?

A hard money loan is a loan you receive as collateral for a tangible asset—usually real estate, but the asset can also be something else of value, such as gold, silver, or a motor vehicle. If you’re unable to repay the loan, the hard money lender can take ownership of the assets you used as collateral.  

Because it’s not a conventional loan, you and your hard money lender aren’t confined to the guidelines created by Fannie Mae and Freddie Mac, so you have more flexibility in terms of your loan. While terms vary case by case, hard money loans are almost always short-term months, usually for the duration of 3 - 36 months.

While hard money lenders aren’t confined to the same regulations as traditional mortgage lenders and banks, many still have loan requirements. Some may just need to know what amount you need and what asset(s) you’re offering as collateral. Others may have lengthier application requirements, including:

  • Your credit score
  • Property location and purchase price
  • Estimate resale price
  • Your level of real estate experience
  • And more

You can read more about hard money vs conventional loans if you want to know more.

What Is Private Money?

What Is Private Money?

What Is Private Money?

While a hard money loan requires fewer regulations than a traditional loan, private money requires you to jump through even fewer hoops. 

A private money loan is just that: a loan given to you by someone to purchase an asset, like property or car, or for investment purposes. Private lenders aren’t even necessarily institutions—they can be a friend, family member, or an angel investor. Pretty much anyone with extra capital and an interest in what you’re doing can become a private lender. As such, the terms for your loan can be even more flexible than with a hard money lender. 

Often, private money lenders have just as much interest in working with you as you do with them. They’re providing you with the capital you need to do something, like flip a house. When you do, they’ll make a return that you’ve agreed upon.

In this case, your profit would be: 

Property sold price - cost of renovations - cost of loan interest - original purchase price

For example, if you bought a home for $150,000, spent $20,000 in renovations, $5,000 in loan interest, and sold it for $225,000, your profit would be:

$225,000 - $20,000 - $5,000 - $150,000 = $50,000

Meanwhile, your private money lender would make $5,000 on the deal without doing anything more than lending you money. It’s a win-win!

Key Differences Between Hard Money And Private Money

Hard money loans and private money loans have a lot of overlap, so here are some key differences between them.


Conventional loans have far more restrictions than hard money. However, private money lenders can have even fewer, which could potentially put both you and your lender in hot water if you’re new to lending and something goes awry.


Both hard money and private money loans are short-term loans. While interest rates vary, hard money loans averaged between 11% - 13% in 2020. They can be more or less, depending on the lending institution and other conditions of your loan. 

Private loans can be even shorter than a hard money loan, or require even a higher interest payment. The loan is agreed upon by you and your private lender, so the terms vary wildly, as long as they remain within the confines of the law.


Traditional loans can take months or more before getting approved. That’s because conventional lenders go through an extensive process to ensure that all the proverbial T’s are cross and the I’s dotted. 

Depending on a lender’s application requirements, hard money loans can be approved in a matter of days, and almost always in a shorter time period than a traditional loan. Hard money lenders have fewer regulations to meet, and therefore less that’s required of them. 

Private lenders can theoretically lend you money instantaneously. Once you sign an agreement, they can transfer your money then and there.


This is where things get particularly tricky. Hard money lenders can and frequently refer to themselves as private lenders, if they’re also defined as non-institutional. One of the key differentiators between hard money lenders and private lenders is their approach:

  • Hard money lenders typically advertise their services. They have a developed process for loan-qualifying applicants, and are available to anyone who meets their criteria. 
  • Private money lenders don’t advertise their services to the general public. They are usually someone you know or someone who has a unique interest in your goals and abilities, and may offer to cut you deals that are below today’s average rates. 

Who Are Hard Money Lenders And Private Lenders?

Who Are Hard Money Lenders And Private Lenders?

Who Are Hard Money Lenders And Private Lenders?

Taking into account those above definitions, here are a few examples of each type of lender.

  • Your former college roommate wants to lend you money to flip and fix a home at 5% interest and 10% of the profits. They’re a private lender
  • A small company offers $100,000 in cash for 12% interest for upwards of 24 months to anyone who meets their qualifications. They’re a hard money lender.
  • Your neighbor is a real estate agent and experienced house flipper. They have previously lent money to two former savvy investors to fix and flip homes. They know and trust you, and want to lend you money to flip an investment property. They’re a private lender. Even though they have worked with others in the past, they aren’t advertising their services to anyone. 
  • Your neighbor is a real estate agent who routinely invests money back into clients who want to fix and flip homes. They agree with people who have some experience and can meet their qualifications for a loan. They’re a hard money lender. In this case, your neighbor is widening their scope to others who meet their qualifications, not just people they know and trust.

The first two examples are easy to define as either a hard money lender or a private lender. The last two blur the lines a little, hence why these terms are often used interchangeably.

Hard Money: Pros And Cons

Here are the pros and cons of hard money:


  • They’re at least semi-institutional and therefore have some regulations
  • They’re licensed to lend money to real estate investors
  • Loans offer flexibility
  • You can get approved for a loan in a matter of days
  • You know what the average interest rates are, and can shop around for the best deal


  • Interest rates are higher than traditional loans
  • They usually require higher down payments
  • You could lose your assets if you default on your loan
  • Shorter payback periods compared to traditional loans
  • If you fail to do your research, you could end up with a loan shark

Private Money: Pros And Cons

Here are the pros and cons of private money:


  • Fewer (if any) regulations compared to both hard money and traditional loans
  • Faster—sometimes immediate—approval
  • No credit history or other background information is necessary
  • Can come from a friend, family member, or another interested investor
  • Potentially better rates than average, depending on the agreed upon terms


  • Often a shorter payback period than even hard money loans
  • Lack of regulations could spell trouble for both you and your private lender
  • Potential to damage a relationship if things go awry
  • Higher fees and interest payments, depending on your loan terms
  • If you fail to do your research, you could end up with a loan shark

Hard Money vs Private Money: Which Is Best For You?

As you may have already guessed, there’s no clear-cut answer. It all depends on your situation and who you know. If you have an amazing working relationship with a real estate agent who is funding your house flipping or investment properties, then using them as a private lender is probably your best option. If you’d prefer to work with an institution so that you don’t risk damaging a close relationship, then a hard money lender may be a better fit for you.

You could also try a bridge loan or a fix and flip loan. In whatever you choose, I recommend doing your research and weighing your options before jumping into any decision. Also, have a clear plan to pay off the loan you take out before making any deals involving assets or loved ones.

Interested in learning more about hard money loans? Check out our posts about hard money loan requirements or discover who the best hard money lenders are in Florida, Virginia, or Washington D.C.
About the Author

As a native Washingtonian, Carlos Reyes’ journey in the real estate industry began more than 15 years ago when he started an online real estate company. Since then, he’s helped more than 700 individuals and families as a real estate broker achieve their real estate goals across Virginia, Maryland and Washington, DC.

Carlos now helps real estate agents grow their business by teaching business fundamentals, execution, and leadership.

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