What Are Bridging Loans and How Do They Work?
A bridging loan is a specialist type of secured loan, designed to provide the fastest possible access to significant sums of money for almost any purpose. Bridging loans are different from standard bank loans, in terms of both their primary uses and the criteria that must be fulfilled to qualify.
How Does Bridging Finance Work?
For the most part, bridging finance works in a similar way to a conventional secured loan. The applicant submits a request to borrow money against the value of a property, which the lender subsequently takes ownership of if the loan is not repaid as agreed.
The primary difference being that with a bridging loan, the total sum of the balance is usually repaid in one lump sum after a period of 1 to 18 months. Monthly interest and borrowing costs are rolled into the loan balance, which the borrower repays on a predetermined date.
In addition, the application process for bridging finance is usually much quicker and easier than for most other types of loans. Where an applicant meets all essential criteria, the funds requested can be released within as little as five working days.
This makes bridging finance ideal for time-critical situations, where traditional loans/mortgages would take too long to arrange.
What Are Bridging Loans Used For?
Technically speaking, a bridging loan can be used for almost any legal purpose whatsoever. Some of the more common uses for bridging finance in the UK include the following:
- Purchasing properties at auction
- Financing property extensions and conversions
- Preventing property repossessions
- Paying unexpected tax bills
- Buying uninhabitable/derelict properties
- Taking advantage of time-critical investment opportunities
- Short-term funding for SMEs
Bridging loans also have a wide variety of non-business applications, such as purchasing a new home before the sale of your current property has completed. In any instance where a significant amount of money is needed quickly and can be repaid within a matter of months, bridging finance is an option worth considering.
What Are the Benefits of Bridging Loans?
Bridging finance can be beneficial in a variety of ways, which differ in accordance with the requirements of the applicant. In all instances, however, bridging finance can be a preferable choice to a conventional loan or mortgage for the following reasons:
- The funds required can often be accessed within five working days of application submission.
- No monthly repayments are required throughout the agreed loan term unless the borrower chooses to pay the monthly interest charge.
- Bridging finance is exceptionally competitive, with monthly interest rates starting from as little as 0.37% per month.
- When bridging loans are repaid quickly, they can be exponentially more cost-effective than any comparable funding method as they rarely have exit penalties and interest stops generating on the day repayment is made.
- Bridging loans can be issued against properties that would normally be considered unacceptable by conventional banks, such as uninhabitable homes.
These are just a few of the reasons why it may be worth considering a bridging loan over a more ‘common’ loan or mortgage.
If you would like to learn more about bridging finance or start an application, contact a member of the team at UK Bridging Loans anytime for an obligation-free consultation.