There are often times when a bit of extra money can go a long way. With a number of loans available in the UK ranging from property development loans to mortgages, there should be something to ease financial pressures no matter your situation. Bridging loans, for instance, can provide financial help for those who are in between sales.

Though as with all loans, it is important to understand the benefits and risks of the agreement before jumping into anything. Despite loans offering a way to access cash quickly, borrowers will generally be required to repay the loan with added interest, meaning they will end up repaying more than they received. Assessing your finances, both when applying for a loan and during repayment is crucial.

What Are Bridging Loans & How Do They Work?

A bridging loan is a short-term form of borrowing that allows you to bridge the gap between buying and selling a property. When buying a new home, there may be a gap between when you put an offer on a property and when your existing home sells, leaving people with a subsequent gap in funds. Landlords, homeowners, and property investors can all make use of bridging loans in the event that such a gap occurs.

Bridging loans lenders might offer applicants anything between £5,00 to £25 million depending on the borrower’s financial circumstances and credit history. The majority of lenders will allow you to borrow up to 75% of the value of your property, but this can vary from lender to lender.

Advantages Of Bridging Loans UK

Bridging loans come with some unique benefits that you will struggle to find with other loan variants. From the speed at which you can access funds to the ease of application and low costs, there is a lot to love about bridging loans.

Accessed Quickly

Typically, bridging loans can be arranged in a very short space of time, sometimes in as little as a few days. Due to the nature of bridging loans, accessing funds in a short amount of time can be key during property exchanges, making it the ideal option for raising money during critical periods.

Short-Term Funding

Bridging loans are a type of short-term loan to cover a certain period in between property sales. As a result, these loans can often be repaid early without penalty meaning you can avoid added interest as soon as you are able to make the full repayment. Yet it is worth checking with your specific lender whether early repayment fees apply to be sure.

Versatile

Bridging loans can be used for a number of scenarios, not solely for property purchases. They can also be used for renovations, auction acquisitions, or business cash flow, making them a versatile financing option worth considering.

Credit History Leniency

When it comes to bridging loan lenders, they are generally more lenient with credit history requirements compared to other more traditional loan lenders. This means that even if you have a less-than-perfect credit score, you may still be able to benefit from a bridging loan and ensure your finances are kept afloat.

Disadvantages Of Bridging Loans UK

As with most loans, there are also some disadvantages that can crop up when looking into bridging finance. Despite offering a number of advantages to borrowers, bridging loans equally come with high-interest rates, fees and other limitations which you should be aware of before making an application.

High Interest Rates

Bridging loans typically have higher interest rates than other long-term financing options such as mortgages. This is because bridging loans are short-term and can be accessed quickly, requiring lenders to increase interest rates in order to make them worthwhile. Therefore, bridging loans can be more expensive over the short term compared to other loans.

Extra Fees

There are also a number of fees that can come with bridging loans which can add further costs to them. Arrangement fees, legal fees, exit fees, and valuation fees can all be included in the overall cost of a bridging loan, prompting borrowers to consider whether the loan is worth it compared to the extra fees and interest.

Risk of Default

If a borrower is unable to repay the bridging loan in full by the end of the agreed term, they could face default. By failing to make repayments lenders can charge additional fees, and if the loan is secured against a property as collateral, this can also be lost. Plus, default will impact your credit score, making it harder to be approved for loans in future. It is therefore essential that you consider whether you’ll be able to repay the loan as well as interest and any other fees before opting for a bridging loan.