As a form of alternative finance, potential borrowers may be confused so this article offers a guide to UK bridging loans and will answer most of their questions.
The most important aspect to bridging finance is that this is a short-term loan that uses security in the form of land or property.
The length of the loan will range from one month to 24 months, though some lenders will not offer money for more than 12 months.
One of the big attractions for bridging finance is that it can be arranged quickly, even for substantial amounts of money that may be required for a range of purposes.
Indeed, the range of purposes is also an important aspect to the growing popularity of bridging loans since their uses can be varied.
While most people will have heard about bridging loans as the way to buy a new property while they await the funds from selling their current home, others also use them for other reasons.
Using UK bridging loans to refurbish a property
Among these are property developers using a bridging loan to refurbish a property so it becomes viable for a commercial mortgage, for instance, they may have to add a bathroom to get the finance.
Business owners are also looking to use the funds for refurbishing their premises or buying stock for an upcoming promotion.
Landlords also use bridging loans increasingly to help develop their portfolio while other property developers can buy their property at auction within the relevant deadline.
As mentioned previously, the process to apply for a bridging loan is very quick when compared with a high street lender; it can take from two to four working days before the applicant gets their money.
Obviously, for those loans that may have valuable security being offered means the applicant may need to wait longer while a valuation of the security and other legal fees are incurred.
Indeed, there are many reasons why those interested in bridging finance should visit the website of a potential bridging loan provider because they will have on their website a bridging loan calculator which will help explain how much their loan will cost.
Bridging loan interest rates UK for finance
For instance, there is no set amount for bridging loan interest rates UK for finance, unlike mainstream finance firms, since the rates vary depending on the amount being borrowed and the duration of the loan.
The purpose of the loan will also have an impact on the interest rates as will the element of risk the lender deems suitable.
The calculator will also show what fees will need to be considered including administration fees, legal fees, and some lenders may also have exit fees to pay as well when the term of the loan comes to an end.
This is also the point to mention that the potential bridging loan borrower really needs to consider an exit strategy.
In simple terms, this means they will know when and how they are able to repay their bridging loan and there are two terms that need to be appreciated.
The first one is an ‘open’ bridging loan which means the borrower has no set date in mind for repaying the money but there will be a date set by the lender for when the loan must be repaid.
A ‘closed’ bridging loan
The alternative is for a ‘closed’ bridging loan which will mean the borrower knows when and how they are going to repay their bridging finance lender since they will know when they will have the money to do so.
As an example, someone who is selling their home and is using bridging finance to buy a new property will know when the contracts are exchanged on their current home and when the money will be in their account to repay the bridging finance.
Borrowers will also need to understand that they do not have to pay interest charges with many lenders and can opt instead to have these ‘rolled-up’ so they make one repayment for the loan when it falls due.
For anyone interested in bridging finance, they may also need to appreciate that while accessing large amounts of money can be done quickly and officially, this type of finance does not suit every type of borrower.
For instance, bridging finance tends to be more expensive than from high street lenders which may not suit the financial plans for some applicants.
Potential bridging loan borrowers
While many potential bridging loan borrowers make effective use of this type of finance, for those who do not know how, or when, they are going to be able to repay the money then this may not be the most suitable form of borrowing to consider.
Also, for those people who are applying for a mortgage and are not confident it will be granted, then taking on a bridging loan may also need careful consideration.
It’s also important that potential borrowers understand the fees being applied to the loan and how much they will be paying in interest charges since this may add substantially to the amount being borrowed.
However, for those who want to know more about bridging finance and how UK bridging loans can help them, then the team at The Bridge Crowd have the expertise to help.