As with most things in life to do with money, it’s always a good idea to get advice before making a decision, and this is true about UK bridging loans as well.
With a plethora of bridging finance firms entering the marketplace in recent years, means there’s a wide range of alternative finance products to choose from.
For those who are interested in bridging finance or peer-to-peer lending, then it’s perhaps time to speak with the experts at The Bridge Crowd.
The team will be able to explain the finer points of a bridging loan.
But what is a bridging loan? Essentially, these loans are interest only, short-term loans with the aim of bridging the gap the borrower may have between needing to purchase something and having money to pay for it.
A bridging loan was used by home sellers
Traditionally, a bridging loan was used by home sellers who needed to buy a new property and were essentially bridging the gap between buying that home and receiving the money from their own house sale to pay for it.
Typically, interest rates on bridging finance tend to be higher but they are also quicker to arrange then traditional secured loans and mortgages and they are a flexible solution for many.
In order to access a bridging loan, the borrower will need to provide proof of their exit strategy, which means showing that they will have the money to repay the loan when required.
There are two types of bridging loan and they are known as ‘closed’ or ‘open’; a closed bridging loan is for those borrowers who know when they will have the money to make the repayment, whereas an open bridging loan is aimed at those who do not know.
The big difference in these loans is that a closed bridging loan will have a lower rate of interest because the lender knows that the loan can be repaid.
One of the big attractions for this type of alternative finance is the ability to have an approval and receive the funds in days or weeks.
For example, for those who want to buy a property at auction, they can make a bid knowing that they can have the money from a bridging lender in time to meet the auctioneer’s deadline.
Appreciating bridging loan interest rates UK
But how do bridging loans work? Along with flexibility and a higher rate of interest which means appreciating bridging loan interest rates UK, the loan is usually secured against an asset, usually a property as a first or second charge.
There’s no doubt that bridging finance has grown in popularity since High Street lenders have tightened their lending criteria and they also take much longer to approve a potential loan application.
The circumstances of the borrower will dictate whether bridging finance is good for them but they offer access to large amounts of money at short notice, which is hugely attractive to businesses, landlords and property developers.
Among the uses for bridging loans is for a landlord to develop their portfolio, give those who have poor credit and cannot access a mortgage an opportunity to buy property and for developers to renovate a dilapidated home.
Most bridging loan lenders will have a calculator available on their website to help potential borrowers appreciate what’s involved when it comes to making the application and how much the loan will cost.
Online bridging loan calculator
The online bridging loan calculator may also offer the opportunity of not making monthly payments, this is known as ‘rolled-up’ interest, so the entire amount is paid when the borrower exits the bridging loan.
Potential borrowers may also be surprised at the range of products available and the varying rates of interest – a lot depends on the value of your security property, the length of the loan and your exit strategy.
Essentially, bridging loan lenders will meet a range of needs from offering loans of several thousands of pounds up to several millions of pounds, with even the higher figure being accessible within days or weeks.
It is for this reason why businesses in urgent need to plug a cash flow issue may be attracted to bridging finance and someone with a need to pay their tax bill, for example, will also be able to access money quickly and easily if they have a security property.
Bridging loans come with various fees and costs
It’s also important to appreciate that bridging loans come with various fees and costs, in addition to the interest charges.
For example, the bridging firm may have an arrangement fee, which is usually 1% or 2% of the loan’s value, and there is also a need for valuation fees so an independent surveyor will need to be engaged and the potential borrower pays this fee.
Some lenders also have exit fees and there will also be solicitor fees so that the legal due diligence is carried out.
If you are looking to get advice about UK bridging loans, or to access this type of alternative finance, then it’s time to speak with the experts at The Bridge Crowd.