When taking out any financial product, it is important you do thorough research and speak to a qualified adviser if necessary to see what the best option for you is and to ensure you fully understand what they are about.
This is certainly true of bridging loans, which can make a lot of sense depending on your needs and personal circumstances.
Taking out a loan for a significant amount is a decision you must ensure you get right, as the consequences of getting it wrong can leave you in a difficult position further down the line.
For this reason, it is important you understand that while bridging loans have their advantages, there are also disadvantages associated with these products that may mean they are not the best solution for you.
The only way you will be able to come to an informed decision is by having a thorough understanding of the key points regarding bridging loans, which may mean you seeking bridging loan advice.
Bridging loans are a short-term solution
The premise of a bridging loan is to provide a significant amount of cash to address a short-term funding gap.
Bridging loans are commonly used to maintain a place in a property sale chain or to purchase a house at auction.
Other notable uses include purchasing a plot of land or dilapidated building to renovate and sell on for a profit.
These are some of the most popular but not the only reasons why people decide to take out bridging loans.
The key point is that this type of finance is intended for a short period only, with many bridging loan companies requiring that the funds are repaid within 12 months.
If you need funding spread over a longer period of time then bridging loans may not be the best option.
Interest rates are usually higher
Interest rates on bridging loans tend to be higher than those associated with other forms of borrowing, with lenders charging a monthly rate which can be 1.25 per cent or higher in many cases.
That is why it is important to keep in mind that bridging loans are a short-term solution. If you fail to repay the loan within a short period of time, the interest you incur could see you paying back significantly more than you borrowed and could leave you in a difficult financial position.
Poor credit history is not a barrier
One of the main criteria taken into account by high street banks when assessing an application for finance is the prospective borrower's credit history.
If your credit rating has suffered as a result of financial mismanagement in the past, you may find traditional lenders turning you away.
This is not necessarily the case with bridging loan providers and many will still consider your application regardless of your credit history.
For this reason, bridging finance is a popular vehicle for those who want to borrow a lot of money but have blemishes on their credit history.
Most types of property can be used as security
A bridging loan company will require that you secure the loan against your property before approving your application.
Most lenders will accept residential houses and flats as well as commercial property as security, while land with or without planning permission is acceptable in some cases.
Large loans quickly
Depending on the bridging loan company you choose, you can borrow between £15,000 and £15,000,000.
In addition, bridging loans can be approved and transferred to you within two weeks in many cases, meaning you can press on with your development plans or complete the purchase of your new home while you wait for your old one to sell.
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.
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.
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.
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.
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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