A bridging loan is a financial product that high street lenders and financial institutions offer. It is used to bridge the financial gap when you need to pay to buy something, but you are waiting for funds to become available by selling something else. It is sometimes difficult for people to sell their property and purchase a new one at the same time. With a bridging loan, you can resolve this problem. A bridging loan helps you move quickly towards buying your new home and giving yourself some more time to sell your existing property.
There are many more lenders of bridging loans in the market. Still, you should completely understand how bridging loans work, the advantages and disadvantages of bridging loans to choose whether it is suitable for you or not.
What Is a Bridging Loan?
It is a type of short-term loan usually taken out when you find it challenging to get funding from anywhere else. A bridging loan is different from traditional bank loans and acts as a temporary loan until you can refinance by selling a property or qualify for a long term loan. You can use a bridge loan for property development, buying a property, business ventures, buy to let investment, paying tax bills and divorce settlements. Typically bridging loans are offered for 1 to 18 months, and you have to return the entire amount at the end of the loan term.
Advantages Of Bridging Loan
Bridging loan financing comes with many advantages, some of which are as follows:
Quick To Obtain
The process of application, approval and funding is very fast as compared to conventional bank loans. As the lenders have no regulatory burden, they are agile, swift and competitive in how quickly they issue the funds. Thanks to this fast process, you can receive funds quickly to purchase a property as an individual and business owners can purchase equipment, meet payroll and pay for inventory with this financing.
Bridging loans are vital for you if you are trying to bid on new projects or need to complete a job. No matter if you want to purchase a real estate property or another business, a bridging loan helps you to leg up against other bidders as you can close the deal faster.
No Monthly Repayment
Bridging loans are simple and more affordable financing options. There are some lenders that do not require monthly repayments of bridging loans. It is very beneficial for you if you do not want the financial burden of making monthly repayments. Unlike standard mortgages, in bridging loans UK, you have an option to add monthly interest payment to the final payment. It is a perfect option for investors and companies who are concerned about ongoing cash flow.
Flexible Lending Criteria
There are many bridging loan providers in the UK, and every lender has its own lending criteria. Most of the lenders are not concerned with credit history, income and affordability. However, they are more interested in the value of the property you are using as a security for the loan and the exit route. The amount of bridging loan thus depends on the worth of your property.
Available For Diverse Situations
The standard mortgages are generally available only for the habitable property. In contrast, a bridging loan is available for refurbishment, land deals and even for construction projects at a place where nothing has yet been built.
No Early Exit Fee
Most of the bridging loan lenders earn profit through the interest rate and the arrangement fees. They do not charge a fee on early payment, so you can repay the amount early whenever you want.
Disadvantages Of Bridging Loan
Along with the advantages of bridging loans, there are some risks associated with them that you must know.
Since bridging loans are short term loans, you have to pay a high interest rate for such loans. A standard bridging loan charges a 1-1.5% interest rate per month. When you compare it with traditional mortgages, you can easily understand how costly a bridging loan is.
The bridging loans for properties in which borrowers reside come with protections and regulations similar to traditional mortgages but commercial bridging loans are currently unregulated. It means that the borrowers will not have any protection from the Financial Conduct Authority.
You can not qualify for a bridging loan until you have valuable equity to use collateral against the loan.
A Range Of Fees for bridging loan
Many lenders charge a variety of fees that include administration fees, arrangement fees, broker fees and sometimes legal fees.
Bridging loans are very beneficial as well as they have some disadvantages. Thus, taking a bridging loan is a good idea or not; it all depends on individual circumstances, such as for which purpose you are taking a loan. However, if you want to take bridging loans at competitive rates, you must shop around and find the best bridging loan providers. To get help in this situation, visit the comparison page where you can find top bridging loan providers in the UK.