For anyone interested in alternative finance, one of the issues is why there is a wide range for bridging loan interest rates UK and this guide will explain why.
Firstly, it is important to understand that there are a wide range of bridging loan lenders in the market and they all have different lending criteria.
In addition, the loans can be used for a wide variety of purposes and this will affect the bridging loan interest being charged.
UK bridging loans
However, when it comes to UK bridging loans, the loan’s value is also an important aspect when considering what the interest rate might be.
For instance, some lenders will offer a lower rate with a higher LTV ratio, so they may charge just 0.49% per month on loan with an LTV of up to 50%.
Alternatively, they may charge 0.94% every month on a loan with an LTV of up to 75%.
It’s also important to understand that for anyone interested in a bridging loan that there will be an arrangement or lender’s facility fee to add to the costs as well.
Again, these fees vary from 0.5% for substantial sums and potentially up to 2% with some lenders on smaller amounts.
A bridging loan is intended to be a short-term borrowing option
It’s also important to appreciate that a bridging loan is intended to be a short-term borrowing option which is why their interest rates are higher, relatively speaking, than they are from a mainstream lender, for instance.
Some lenders also charge an exit fee which is added to the loan’s final payment though many lenders do not add this fee.
Potential borrowers for bridging loans also appreciate that they have legal fees as well as valuation fees to pay, depending on what the loan is going to be used for and the security that is being provided.
The rate of interest charged by lenders
Among the factors that affect the rate of interest being charged by lenders is the loan’s duration, the borrower’s credit history including their monthly income and the value of property that is offered as security.
While these interest rates may appear to be high, for those who are rolling up their interest charges, that is to say they will not be repaying any interest until the loan falls due, then the interest rates are an attractive proposition.
Essentially, those are the reasons why bridging loan interest rates UK vary and a lot depends on what the loan’s purpose is, the security offered and the borrower’s own circumstances but for further help contact The Bridge Crowd.