Bridging loans explained

Wednesday, 08 June 2011 12:40

Bridging loans explained

Bridging loans explained

We all experience a shortage of cash from time to time, whether it is due to unexpected circumstances or you simply need to fund a large purchase. If you are in this situation, you may be considering taking out a bridging loan – but what exactly does this entail?

Secured against a property, bridging loans are short-term financial deals that are often used to provide a little extra fiscal stability when moving home. For example, if you have purchased a new property but your house is taking longer than expected to sell, this kind of credit can tide you over until a sale is closed.

However, bridging loans can be used to stem a variety of financial situations. From important events such as weddings to unexpected circumstances like unemployment, this type of financing can be used to ease any monetary pressures you may have.

Indeed, such loans can also be used for commercial purposes, which could be good news for those running their own business.

Before deciding if they are for you, seeking some bridging loan advice from a professional is advisable. There are many factors to take into account prior to selecting your loan – from determining if you are eligible for this kind of credit, to ascertaining whether it will suit your individual situation.

First and foremost, to apply for a bridging loan you need to be a homeowner. This is because they are secured against a property.

People with all kinds of credit history can apply, so if you have been turned down for other loan types, you may find you are successful here. However, if you are currently bankrupt you will not be eligible for a bridging loan.

The next thing to consider is how you will pay back the loan. While your provider may be able to be quite flexible in terms of repayment periods, you must carefully calculate how soon you will be able to clear your debt – taking additional costs such as monthly interest into account.

As well as the accrued interest, you will need to think about taking care of administration and legal fees too.

Bridging loans typically last between one and six months, but they can continue for as long as a year. Repayment terms are flexible, with some companies allowing you – rather than them – to determine when you will clear the sum.

This kind of financing may particularly appeal to you if you need to access some additional funds in a hurry. A response to your application could be received within as a little as 24 hours, with the deal itself being arranged within five days. So, you could benefit from a fast, clear picture of your finances.

When selecting a bridging loans company, make sure you thoroughly research your options and choose a firm you trust. Among the points to look out for are organisations regulated by the Office of Fair Trading or other official bodies.

And before deciding to take out this type of credit, be sure to speak to a professional to be clear on all your options.

If you're seeking a short-term loan to move up the property ladder, fund a large purchase or simply to tide you over during a difficult period, a bridging loan can provide a fast, effective and helpful solution.



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Finance articles

  • Is a bridging loan right for budding entrepreneurs?

    Raising the money you need to start a business can be hard, however, there are alternatives to bank loans. Among them are bridging loans, peer-to-peer lending and borrowing money from friends and family, meaning you need to do plenty of research.

  • Important questions to ask bridging loan companies

    Before taking out a bridging loan, you must understand a number of key points. These include the rate of interest you will be charged, the length of time you have to repay the loan and whether there are any arrangement fees that apply.

  • Why bridging loans are only suitable for short-term funding

    You should only consider bridging finance if your funding needs are temporary. This is because the high rates of interest make bridging finance unsuitable as a long-term solution, so if you have long-term needs, you should look at other options.

  • Banks vs. specialist lenders – which bridging loans are best?

    Both banks and specialist bridging loan companies can provide the bridging finance you need, meaning you need to compare products from a range of providers. You need to look at factors such as interest rates and arrangement fees.

  • Can bridging loans work for those who only need small amounts?

    Some bridging loan companies will lend up to £5 million if you have sufficient equity in your home, however, what if your borrowing needs are more modest? If you need a sum of £10,000, bridging loans can still be an option.

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