In some recent years, growth in the UK’s bridging loan market has been observed. It means that more and more people are getting into it. Bridging loans are short term loans typically used to complete the purchase of a property while awaiting the sale of current home or property. It can also be used to cover the cost of property refurbishment before the sale of the property. Investors who want to buy property at auction can also use bridging finance.
There has never been a suitable financial product for everyone, same as in the case of bridging loans. It is necessary to know the pros and cons if you are considering getting a bridging loan for any purpose. Consulting with a broker can help you to find a provider that meets all your requirements. Here we are providing you with the advantages and disadvantages of bridging loans.
Pros Of Bridging Loan
Along with the easy application process, there are many other advantages which are as follows:
Flexible Lending Criteria
The lending criteria of bridging loans vary from provider to provider. Usually, the lenders are not concerned with credit, income and affordability. They just want to know the property value that the borrower is using as security and the exit route. The exit route is the method or plan you have in place to repay the bridging loan. Therefore, if you have a property of good market value with a perfect exit plan loan, it is easier for you to get a loan.
When people need to borrow a large amount of money, they usually get it through a business loan, commercial loan or buy to let mortgage. All these loans can take weeks or sometimes months to arrange. On the other hand, bridging loans are fast to arrange, and the cash will be transferred to your account usually within 48 hours.
The bridging loan allows borrowers to not repay a single pound until the agreed repayment date. There is no monthly interest payment, and borrowers can return the loan amount plus interest at the end of the loan term.
Multiple Properties As Security
If you want to borrow a huge amount and the value of your property that you want to use as security is low, you can use multiple properties as security. It can be on a first charge or second charge basis.
Cons Of Bridging Loan
Bridging loans have some drawbacks, some of which are as follows:
Bridging loans have higher interest rates as compared to traditional loans. Moreover, the longer it takes to sell your property, the more interest you have to pay because interest is compounded on a monthly basis.
Risk Of Repossession
To get a bridging loan, you have to use your property as collateral. If you are not able to repay the loan amount, the lender has the right to sell your home to get his money back.
No Redraw Facility
If you decided to repay the loan amount during the bridging loan term, but later you are not able to make repayments and want to redraw, it is not possible.
Other than that, many lenders charge a variety of fees, including the origination fee, processing and completion fees that add up to the cost of a bridging loan.
Now that you know the positive and negative sides of bridging loans, it will help you to decide whether you should take such loans or not. If you want to get the best rates, we suggest you shop around and make comparisons of different providers. In this way, you can select a provider that meets your requirements and offers competitive interest rates.