Bridging loans are an efficient and fast way to acquire short-term capital for various purposes. They’re frequently utilized to facilitate deals or purchase investment property before you sell your current residence.
Different from savings accounts and mortgages, bridging loans are secured against an asset such as property or land. If you fail to repay your loan, the lender has the right to repossess that asset.
Interest rates on unsecured bridging loans can vary depending on the lender and loan term, being either variable or fixed, with repayments made monthly or deferred.
Bridge loans are commonly used when buyers cannot secure permanent financing for a property. They come with various terms and are intended to ease the financial strain that occurs between purchasing a new residence and selling their current one.
These loans can be secured against a property or asset, meaning the loan amount will be reduced if it’s repossessed. Furthermore, they’re faster than other forms of finance; you might even get an in-principle decision within just a few hours with some lenders.
Funding Options, a lending platform, allows you to compare over 120 lenders in order to find the ideal bridge loan for your business needs. These fast loans can be used for various things like property renovations, debt consolidation and tax payments.
Bridging loans can be used to purchase a new property before your current one sells. They’re especially helpful for real-estate developers who need to get an investment property off the ground before selling it at a profit.
These loans are secured against your property, so if you fail to repay them the lender has the right to repossess it. Usually, repayment for these types of loans takes 12 months; however, it’s wise to inquire with your lender as to how long the repayment term will last.
Repayment terms on bridging loans can be fixed or variable, and interest can either be paid monthly or in one lump sum at the end of the term.
You may choose an open or closed bridging loan, which has a fixed end date for repayment. This provides more certainty about your payments and may mean paying less interest over the course of the loan than with retained bridging loans.
Bridging loans can be a quick and effortless way to raise capital for your business, but you should weigh the fees before applying. Interest rates on bridging loans tend to be higher than other forms of finance, plus there’s the risk that all of your business assets could be at stake if you fail to repay the loan on time.
The fees you’ll pay on a bridging loan depend on the property used to secure debt and your credit rating. They may include survey and valuation fees, broker fees and solicitor fees, among others.
Fees for bridging loans typically need to be paid up front, though many lenders will allow you to spread them over the duration of your loan term. You’ll also have to pay a drawdown fee which occurs when funds need to be accessed quickly. These costs can add up quickly so make sure to budget carefully if possible; choosing a fixed bridging loan rate upfront helps avoid these costly extras.
Bridge loans are popular among homeowners to cover the down payment for a new home while they wait for their current property to sell. Companies may also utilize bridge loans for working capital needs while waiting for long-term funding sources.
Borrowers typically apply for bridge loans with a credit score of 650 or higher, since they will be taking out a substantial amount of money that must be repaid quickly.
Bridge loans typically feature interest rates ranging from prime plus 2% to prime plus 10.5%, depending on your lender’s terms and conditions. This may prove too high for some borrowers, especially those trying to purchase a new home while their old one is up for sale.
Alternatively, you could utilize a home equity line of credit (HELOC), which functions similarly to a bridge loan but offers longer repayment periods and typically lower interest rates. This may be your best bet; however, it may be more difficult to obtain.