Short term bridging loans offer borrowers a borrowing solution that is easier to access than a high street loan.
Indeed, one reason for their rising popularity is that high street lenders have tightened their criteria, whereas bridging loans are an alternative form of finance these are quicker to access with fewer obstacles to obtaining a loan.
Essentially, all a borrower needs is a security property to access funding and this property will need to be independently valued so the lender will be reassured that they will get their money back should the borrower default.
Also, bridging loan lenders will have different types of loans. So, essentially someone with a bad credit rating could still access a loan with a potential provider.
What is a bridging loan?
The big difference between a bridging loan and, for example, a standard mortgage is the length of the loan itself.
Bridging loans tend to be short-term and most lenders will offer a loan for up to 12 months and some will do so for up to two years. That contrasts with a mortgage lender offering a traditional loan that could be up to 40 years.
Also, bridging loans can be used when it’s not possible to buy a property using a standard mortgage and a developer could use the money to refurbish a property so it attracts a mortgage.
The best way of understanding a bridging loan is that it’s often seen as a stopgap, so a property investor can move forward without having to plan an exit strategy, which will usually mean selling a property or remortgaging it.
Short term bridging loans UK
If short term bridging loans UK appeal to you and your needs, remember that they can be used for just about any purpose and you need to appreciate that there are two types of bridging loans available:
Closed bridging loan
The first type is a closed bridging loan, which means that the borrower has an exit strategy in place. For example, they may know when the funds to repay the loan will be available and these loans tend to have a lower rate of interest. Property developers can also access these when buying property at auction, for example, knowing that they can meet the auctioneer’s deadline.
Open bridging loan
For those who do not have an exit strategy in place, that is to say, they don’t know when they will have the funds for repaying the loan, then this will be known as an open bridging loan. They tend to be more expensive because there’s more risk involved for the lender.
The positives for considering a bridging loan include:
- They are quick to arrange: rather than taking months that a high street lender will take, a bridging loan lender can forward the money in just a few days if the paperwork can be completed and a survey of the security property carried out.
- Monthly repayment options: unlike a mortgage agreement, there are several ways to repay a bridging loan so you can either roll-up the interest and have it added to the final amount to be repaid or pay interest as you go along.
- Can be used for any purpose: we mentioned previously that a bridging loan can be used for any purpose and they are not just used for buying property, uninhabitable or otherwise. Some developers will use bridging loans for land deals, as well as construction projects and renovation.
Others will also use a bridging loan to pay an unexpectedly large tax bill or a divorce settlement, while firms could use the money to buy stock for a lucrative sales promotion.
While bridging loans offered borrowers a quick way to access a large amount of money, there are some downsides – among these will be the high-interest rates.
It’s important to appreciate that any interest rate being quoted is not the APR figure and will be the amount charged per month.
Bridging lenders will also have an administration charge to be paid when taking out a loan, including the surveyor’s valuation fee, and sometimes there are legal fees to be paid by the borrower.
Use a bridging loan calculator
A checklist of the potential for bridging loan borrowing in the UK should also highlight that it’s worth shopping around between potential bridging loan lenders because the rates and terms will vary, which means it’s important to use a bridging loan calculator and every lender will have one on their websites so you can easily see the potential loan will cost.
If you would like more help and information about short term bridging loans, then you need to speak with the experts at The Bridge Crowd today.