A bridging loan is a very useful lending mechanism that provides fast finance for large sums to enable to property transactions to complete. Designed to lend you a large some of money for a short period of time, this loan is aimed at amateur property developers and people needing to buy a property quickly without yet selling their home. While this loan comes with many benefits, it comes with high interest rates. It is a short-term loan that bridges the gap between money your waiting to receive and money you need to spend. Here is a great video explaining what a bridging is and why you might need one.
When might you need a bridging loan?
There are many situations this loan could come in handy, for example, if you are buying a home but you don’t yet have the money in your account from selling your current property this loan could help. It provides you with the money you need to purchase the new house while you wait to receive the money from your old house and in doing so, can pay it off immediately. While it is a practical solution to a situation in which you need money fast, it’s important to be aware of the types of bridging loans out there and to tread carefully. These loans come with high interest rates as they are for a short term basis between one week to twelve months, so there is always a risk factor in borrowing large amounts.
Who takes out bridging loans?
As well as people needing to move house fast, amateur property developers also benefit highly from this kind of loan. People who have bought a house on an auction who need a mortgage quick can use this loan to secure their purchase and avoid the lengthy process through solicitors and banks that is needed when applying for a mortgage.
In addition, landlords can take advantage of this loan when buying more properties to let. By being able to buy properties quickly that you are planning to make money from will ensure you can pay back the loan through tenants’ rent and use the property market to your advantage.
This loan is also offered to people who buy homes to renovate and then sell on. It provides quick cash to buy the home, like a temporary mortgage, and then allows you to pay it back once you’ve sold the property.
What to consider when taking out a bridging loan
These loans, while they come with a lot of advantages for many buyers, can also come with great risk. With the high interest rates, they can mean you are less likely to be considered by mainstream lenders if you do not have secure evidence of being able to pay it back in the near future. They are often a high-risk loan but under the right circumstances can work highly in your favour.
Recently many people have begun considering bridging loans as an alternative to mainstream lending and can help if you are in a difficult financial situation. With the immediate large amount of cash it can save you from getting your house repossessed if you can subsequently pay it back and are waiting for money to be processed into your account.
With lending periods of between a week and 12 months, these loans can also be used for businesses if they use the money in a manner that will boost their profits quickly. They can also be either with a fixed time scale or open with interest rates, typically at the very least, around 1.25% a month.
Bridging loans can help in many fields where quick cash is needed but as with any high interest loan it comes with risk, so do your research and compare the loans on the markets and what they offer. Keep in mind the time period you will need for the loan and this will help you get the best deal you can with the least risk.