As a form of alternative finance, a bridging loan calculator is crucial for a loan and those who are applying or even thinking about one need to understand why.
The most important reason why a bridging loan calculator is an important part of the process for applying for bridging finance is that it will help the borrower understand how much they will need to repay and what type of security will be necessary.
Most bridging finance lenders will have a calculator on their website and the borrower simply needs to add a few pieces of information to have a good idea of how much a loan will cost.
However, it should be appreciated that a loan calculator is only intended to provide a rough idea of the cost involved when undertaking such a short-term finance route.
It should also be appreciated that lenders will offer differing interest rates depending on the loan’s size and purpose and they will calculate their rates of interest for the loan differently.
The lenders will almost certainly offer different fees for their administration costs as well as valuation and legal undertakings.
Short term bridging loans UK
The bridging loan calculator will highlight how much interest will be repaid every month on short term bridging loans UK though this is mostly down to the loan to value (LTV) of the loan itself.
For instance, on borrowings with a 40% LTV, the rate of interest being charged per month may be 0.49% while for a loan with a loan to value of 75%, the interest rate will be much higher, it could be, for instance, 0.84%.
Along with the rates of interest, the calculator will also reveal what the arrangement fee for the lender will be.
For most bridging finance lenders, they will charge around 2% as an arrangement facility fee and this is the gross or net loan amount. It’s important to check which it is since the difference in values could be huge depending on the amount being borrowed.
Indeed, on larger sums, the arrangement fee will decline so if somebody was borrowing £1 million, for instance, their arrangement fee may only be 0.5% and for larger sums, they may not be arrangement fee whatsoever.
The bridging loan calculator will also determine what the minimum loan term period is; for most lenders, this will be 30 days so if the borrower repays the loan within this period they will still receive the full 30 days interest being charged.
However, after the initial 30-day period has come to an end, the borrower will only be charged interest on the amount they borrowed to the day when they clear their loan.
It should also be highlighted at this point that the bridging loan calculator will also reveal that there is no set rate of interest being charged by bridging finance firms and a lot depends on the borrower’s own personal circumstances, what the money is going to be used for and what type of security is being put up.
Tips on how to use a bridging loan calculator
Most lenders with a bridging loan calculator function on their website will require the borrower to input how much they are looking to borrow and the monthly rate of interest for that amount.
There will also be an option for the administration charge though most calculators will have a default setting of 1% or 2%.
The facility fee will then be displayed with the monthly interest charges being calculated with the administration fee taken into account.
While it may be tempting to do so, the borrower will need to enter the administration fee since this has a bearing on the overall cost of the bridging loan. These fees may vary between lenders.
There will also be a need to highlight that valuation fees on the security may be required and should the borrower be offering more than one property, then they the valuation fees will be much higher.
As a result, the bridging loan calculator will reveal the gross loan amount, which is the amount the borrower requires, along with the lender’s administration fee.
Interest being charged on the bridging loans UK
The calculator will also have the monthly interest being charged which is based on the bridging loans UK amount, the administration fee and the rate of interest per month.
Generally, the amount that is revealed in this box for monthly interest is calculated by using the lender’s monthly amount of interest on the gross amount of the bridging loan.
The borrower will also see how much interest is repayable should the bridging loan run its full term so this is essentially the interest the lender is charging every month which is multiplied by the months the loan will run for.
Also, a big plus for many bridging loan borrowers is the fact that the interest can be ‘rolled-up’ which means the borrower does not have to pay until the loan falls due.
For this purpose, a bridging loan calculator will have a box that shows the gross loan amount with the interest rolled-up should the loan run its full term.
Essentially, that is everything anyone needs to know about why a bridging loan calculator is crucial for a loan because all of the relevant information will be displayed and the borrower can make a decision about whether this type of alternative finance is for them but for more help and advice it is worth speaking with the team at the Bridge Crowd.