What Is A Bridging Loan?
A bridging loan is a specialist type of short-term debt designed to provide quick access to money. You can take a significant amount of money and can use it for almost any purpose. Bridging finance is different from the standard bank loans in terms of the primary set and the eligibility criteria that the borrower has to fulfil to secure a loan. Over time the demand for bridging loans is increasing in the UK because it offers a lot of flexibility and benefits to the borrowers. Typically it is used by the property investors and developers to complete the purchase of a property.
Let’s take a close look at how a bridging loan works and its uses to understand more about it.
How Does a Bridging Loan work?
More or less, a bridging loan works similarly to a secured bridging loan. However, to secure a loan, you must have valuable property to use as a security against the loan. The major difference between standard secured loans and bridging loans UK is that it is a short-term loan, and you have to pay the loan amount within 1 to 18 months. Moreover, there is no monthly interest payment, the interest and borrowing cost is rolled into the loan balance, and you have to repay at the end of loan terms.
In addition, the application process and eligibility criteria of bridging loans are easier than other types of loans. It is because bridging loan lenders do not consider your credit score and income source as the first priority. Instead, they look at the value of the property and your exit strategy. As a result, if you have a strong exit strategy and meet all essential criteria, you will get access to funds within as little as five working days. That is why borrowers consider bridging loans an ideal solution in time-critical situations where traditional mortgages and bank loans take a long time to arrange.
Uses of Bridging Loans
Technically speaking, you can use a bridging loan for almost any legal purpose. Following are some common uses of bridging finance in the UK:
- Purchasing a property at auction.
- Completing the purchase of property before the sale of existing property.
- Renovation or refurbishment of a property.
- Preventing property repossession.
- Resolving business cash flow issues.
- Taking advantage of time-critical opportunities.
- Paying unexpected tax bills.
So you can see how flexible bridging loans are in terms of use. You can take out a bridging loan at any time to fulfil your current financial needs.
Bridging loans can be beneficial for borrowers in a number of ways, such as the fast arrangement of loans, quick access to funds, easy to meet eligibility criteria, and multiple uses. Furthermore, you have the option to pay interest rates monthly or at the end of loan terms. Therefore, we can say that it is the best alternative finance option, especially in time-critical situations.
If you want to take out a bridging loan, it might be challenging for you to choose the best lender. You must shop around and make price comparisons so that you can find the best bridging loan provider. You can also use online comparison sites to unveil the best deal without wasting your time and effort.