Bridging Loan Pros & Cons
Over the last few years the UK has seen the bridging finance market grow, expand and diversify like never before. But what exactly is a bridging loan and what are the benefits of this type of funding option when compared to more traditional financial products?
The Pros of Bridging Loans
There are some unique benefits when considering bridging finance that you won’t get with any other type of loan, with the following being the main advantages:
- Speed of Arrangement – Bridging loans can be typically arranged in a very short space of time, often in as little as a few days, making it the perfect option for raising cash for time critical purchases.
- Low borrowing costs and competitive interest rates – UK Property Finance have access to all of the market and therefore can find great deals on bridging finance from a wealth of specialist bridging lenders across the UK. Depending on your financial standing, you may be able to get lower rates and fees, but this will be assessed on an individual basis.
- Simple application processes and lending criteria – Applications for bridging finances are considered on an individual basis by the lender and are generally open to all applicants, even those with a less than perfect credit history. Provided the borrower has sufficient security and a viable exit strategy, being approved is relatively simple process and proof of income may not be required.
- Deferred Payment. A bridging loan is typically repaid in full, including any interest that has been accumulated, at the end of the loan period.
- Available for all purposes. Provided the applicant can meet all their payment obligations, bridge loans can be used for any legal purpose whatsoever. They are especially useful for purchases that need to be acted upon in a speedy manner, for example when buying a property at auction.
The Cons of Bridging Loans
When looking at the positive aspects of bridging finance, it is equally as important to consider the disadvantages:
- High Interest. When comparing the high interest rates attached to bridging loans with more traditional long term loans, you will find that the borrowing costs tend to be higher due to the short term nature of this type of loan.
- Collateral. As a bridging loan is a secured loan, it is necessary to have sufficient collateral to offer the lender as security. Without enough equity or assets to guarantee the loan, finding a lender who is willing to take the risk will be difficult.
- Fees. There are various fees and charges associated with bridge finance which can add up quickly and significantly increase the overall cost of the loan. Many lenders charge a variety of administration, processing and completion fees so it is advisable to know exactly what costs you will need to take into account.