Understanding the different types of bridging loans available

Friday, 29 July 2011 05:20

Understanding the different types of bridging loans available

Understanding the different types of bridging loans available

You may find that a bridging loan is an incredibly effective financial tool to use. However, before putting in a request for such a short notice borrowing product, it is a good idea to have a grasp of the different kinds of loans that are available.

Indeed, by doing so you may find that you will be able to make an informed choice, meaning that the product you do get is one that is ultimately right for you.

When looking at the various kinds of credit that are available, one product you might wish to consider is an 'open' bridging loan, which has such a name because borrowers do not have a well-defined strategy over how they intend to make repayments.

And you may well want to look into applying for this kind of loan if you have bought a property at auction.

In such cases, you are likely to need to settle the purchase within a fairly short amount of time and if you do not have the opportunity to seek out mainstream funding, then an open bridging loan could ensure that you can raise the funds needed to purchase the home quickly.

Time is always of the essence when buying property, but perhaps even more so when purchasing one at auction, so the fast nature of bridging loans means that you do not miss out.

Alternatively, you could find that a 'closed' bridging loan is a more suitable product in terms of meeting your financial aspirations.

Here, the term 'closed' refers to the fact that you will be able to give a guarantee to lenders by informing them how you intend to pay back what you have borrowed.

For example, you may have agreed to purchase a home but are having problems raising the money in order to do so as a result of difficulties selling your existing residence. But if you know that these issues will be able to be resolved fairly quickly – perhaps there has been a technical delay that has held up the surveyors' report from being processed – a bridging loan can ensure that the transaction will still go ahead, meaning you will be able to buy your new home without losing money unnecessarily.

In such cases, a mainstream lender is already likely to have agreed to offer you finance so you can show that – in time – you will be in a position to repay your bridging loan.

But while many people look to bridging loans as a means of advancing up the housing ladder, this is certainly not their only purpose. Indeed, they have also been deployed as a way of generating money to pay for home improvement projects, fund major purchases asides from property and to consolidate debt. And if you're considering applying for bridging credit for either of these purposes, then an open loan may be the most effective choice.

Whatever product you want to select and what you wish to achieve by doing so, taking the time to get bridging loan advice is always a good idea.

When you do so, you will be able to speak to an expert adviser who can guide you on all the different options that are available to you and help you make an informed choice in selecting the one that will be most suitable.



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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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