For many people, bridging loans can be an extremely useful way of accessing finance quickly, but how do you find the best bridging loan rates?
That’s an interesting question when this is a competitive market and you could access a loan in just a few days.
That compares very well when borrowing from high street lenders, such as banks, who can take several months to process your application since their lending criteria has tightened in recent years.
For those who may not be aware, bridging loans have extended from their traditional use of fulfilling a need to buy a new home while the seller was in the process of selling their current property.
The finance then helped to ‘bridge’ the gap between the need to buy a house and having the money to pay for it.
Now, this type of alternative finances is used for a wide range of purposes, including:
- Buying property at auction
- Refurbishing a derelict property
- Upgrading a property
- Paying off a tax bill or a divorce settlement.
The process to apply for a bridging loan UK
It’s important to appreciate that not only is the process to apply for a bridging loan UK a quick and easy process, but the amount you can borrow will depend on the value of the security property you use.
This means that there will be bridging loan lenders who will offer anything from £1,000 to £1 million.
And since the lenders will be looking at the value of your security property, not all of them will be wanting to know what your income is and some may not even carry out credit checks.
Essentially, all you need is enough equity in the security property, or another agreed asset, and have a good exit strategy to access this type of finance.
By exit strategy, we mean that you need to know how and when you will be able to repay the loan and there are two terms that will be used. They are:
- A closed bridging loan: This is when the borrower knows when they will have the funds to repay the original loan. These loans also tend to attract a lower rate of interest.
- An open bridging loan: This is for those borrowers who may not know how and when they will be able to repay their loan – because of this uncertainty, these bridging loans tend to have a slightly higher rate of interest.
Bridging loan interest rates UK
It’s also worthwhile understanding that bridging loan interest rates UK tends to be higher than they are for other forms of borrowing, including mortgages.
When you begin the search of the bridging loan lending market, you need to appreciate that they are on an interest only short-term basis.
More importantly, the rate of interest that is being stated will be per month and not per year.
In addition, the rates for a bridging loan can be variable or fixed. A simple explanation of the differences are:
- A fixed-rate of interest will remain the same during the loan’s term
- A variable rate of interest will see it fluctuate so the amount you pay could go down or up.
You may also be offered a ‘deferred’ or ‘rolled-up’ bridging loan, so there’s no interest to pay every month and the interest is added to the final loan amount as a lump sum at the end.
There’s also retained interest which means the borrower will essentially borrow the money to repay the interest and this is calculated on the length of the loan’s term and settled later.
Bridging loan rates UK
Another issue for those interested in bridging loan rates UK is that there may be other fees and charges to pay.
The lender may have an administration fee along with arrangement charges and some may also impose exit fees.
The best way to understand what these will cost, along with how much your potential loan will attract in interest, is to use the potential lender’s online bridging loan calculator which will be found on their website.
Using a bridging loan calculator will help you appreciate what the total cost of the loan will amount to and these additional costs will need to be factored in.
Should you be interested in finding the best bridging finance interest rates, then you need to appreciate that competition within the marketplace is stiff and fees and rates will fluctuate.
However, when it comes to finding the best bridging loan rates, it’s always worth speaking with experts who understand the market and can help explain more about the interest rates on how bridging loans are arranged and that is to speak with the experts at The Bridge Crowd.