What is the difference between a private lender and a hard money lender?
To me there is little difference, and the terms are interchangeable. Hard money lenders are private parties, generally individuals or small groups of people, as opposed to a public entities like a banks, credit unions, life insurance companies, etc. In other words, they are private lenders making loans with private money.
Then how/why do people sometimes make a distinction between private lenders and hard money lenders? First, some believe that if you borrow money from someone who is not actively engaged in lending money then you are borrowing from a private lender, not a “professional” hard money lender. Following this line of thinking, Aunt Agnes or Cousin Claude would be a private lender; Forrest Financial would not. Second, some make the distinction based upon the cost of the money. The assumption being that private lenders charge less than hard money lenders. Aunt Agnes may well make a loan to a family member at a rate lower than that from Forrest Financial Group. Is Aunt Agnes making a private loan? Sure. But in my mind, she is also making a hard money loan. Regardless of what you call a lender, it is important to know who you are borrowing from and to structure the loan so that both parties comfortable and fully understand the terms and conditions. Taking advantage of Aunt Agnes because she is naïve when it comes to real estate and financial matters could be a big mistake. Something could go wrong, or there may be a just simple misunderstanding down the line. Either way, sitting down with an unhappy Aunt Agnes at Thanksgiving might not feel good.