For anyone who is asking what the bridging loan interest rates UK are then there is no straight answer but this article will help explain why.
In a nutshell, the rates of interest being charged on a bridging loan vary from lender to lender and also for the purpose of the loan.
A lot also depends on the borrower’s individual circumstances and interest rates can range from 0.55% to 1.5% for each month the loan is active.
It should also be appreciated that a bridging loan lender is expressing the rates of interest on a monthly basis rather than over the year.
As an example, a bridging loan finance firm advertising a rate of 1.5% per month means this would equate to 18% APR. This is one reason why it makes sense for those who borrow money this way to repay the loan as quickly as possible.
Short-term nature of UK bridging loans
In addition to these rates of interest, which tend to be higher than are offered by mainstream banks because of their flexibility, the short-term nature of UK bridging loans means there’s also an administration charge to be levied when the loan is agreed.
The amount being charged can vary as well and, for instance, a firm charging a 1% fee to arrange a bridging loan would be asking for £1,500 on a loan of £150,000. Potential borrowers also need to be aware that some lenders also charge a similar fee to exit a bridging loan arrangement.
While the rates of interest for bridging finance tend to be slightly more than those being offered by a mainstream lender, they also come in variable or fixed rates – just like mortgage lenders offer.
A short term bridging loan with a variable rate of interest means the interest rate may be subject to change so the monthly repayments could increase or fall in line with the market.
Rate of interest on a bridging loan
A fixed rate of interest on a bridging loan means it’s applied across the loan’s term with repayments remaining the same.
It’s also possible to have the interest rate ‘rolled up’ so the borrower does not have to make monthly repayments and could simply repay the entire amount when the exit date falls due.
Other terminology that anyone looking at the interest rates for a short-term bridging loan need to appreciate is whether it’s going to be open or closed.
Essentially, if the borrower has a clear exit strategy when applying for a loan, which is to say they know when they can repay it, then this will be a closed bridge loan.
Alternatively, for those who do not know when they will have the cash to settle the loan, for instance a property developer looking to renovate property and then sell it on, they will opt for an open bridge loan which is a riskier route for them to take.
For more help and advice about bridging loan interest rates UK then contact the helpful team at The Bridge Crowd.