The most important aspects when considering bridging finance is to understand what these loans are and what they will cost which is why most lenders will offer a bridging loan calculator to help.
While the calculator will explain the costs involved, for complex situations you should really speak to a bridging loan expert first.
In a nutshell, bridging finance tends to be a short-term loan with the money being used for a wide variety of purposes, though many borrowers use them for buying property.
Indeed, most people may have heard of the term when buying their home and they may have needed bridging finance because the proceeds from selling their current home have not arrived in their bank account – so this finance offers a ‘bridge’ between needing to a buy a new home and having the sale proceeds available for the purchase.
The bridging loan can be secured against a suitable property, whether it’s commercial or residential, or other assets, including land.
It’s also important to appreciate that the amount that you can borrow with this type of finance varies too with some lenders offering a few thousand pounds and others offering up to several million pounds.
Short term bridging loans UK
However much money you need to borrow, you will need to understand that short-term bridging loans UK are usually secured against the asset which will dictate the loan to value, known as LTV.
Also, when looking at using a bridging loan calculator you need to know how you will be repaying the finance before applying.
The usual methods for repayment will include selling a property, receiving money or refinancing to a longer term financial product, such as a buy to let mortgage.
The bridging loan calculator will also have the length of time that you need the money for and the rate of interest that will be charged.
This is where knowing how you will repay the money may be important because for those who know when they can repay the loan may enjoy lower rates of interest.
Also, since bridging finance is designed as a short-term loan, a bridging finance calculator will help calculate the likely costs involved.
Along with administration charges, there will also need to be a surveyor’s fee for valuing the security asset and potential legal fees as well.
Some firms also charge an exit fee when the loan comes to an end or if you repay the loan early.
Finance firm offering short-term bridging loans
Not every finance firm offering short-term bridging loans will charge exit fees, so you could save money by shopping around to find a different lender.
The calculator will also have the arrangement fee, which will range from 0% to 2% of the loan’s amount. Obviously, for larger amounts of borrowing, this can be a significant figure and you may find cheaper deals elsewhere.
The calculator will then reveal how much the loan will cost, including the total interest that will be charged over the loan’s course.
Some bridging finance lenders may also offer the opportunity of not making repayments until the loan falls due which means the interest is ‘rolled-up’ and the loan will be paid in full on an agreed date.
As mentioned earlier, bridging finance is a short-term funding solution but it’s growing in popularity because the lending criteria is not as restrictive as high street banks and building societies have imposed.
In addition, bridging finance is quick to arrange and if you already have a relationship with a lender then it can be done in just a few hours. Most applications will take several days to arrange and some may take a few weeks.
This type of finance is a popular choice for property developers, particularly if they want to buy property at auction and need to arrange finance quickly.
Bridging loans can be used for other purposes
However, bridging loans can be used for other purposes as well with firms using the money to refurbish premises, for example, while others may have a personal bill they need to pay quickly.
Competition in the sector has also increased with a range of lenders offering a wide variety of interest rates and sums to borrow and most will have a bridging loan calculator on their website to help potential applicants.
If you have any questions about a short-term bridging loan or would like more information on how to use a bridging loan calculator, then you should speak with The Bridge Crowd team.