Guide to Bridging Loans

Bridging loans are not as prevalent as the more common secured and unsecured loans, but they play a massive role in the loans market – a role that allows people to finance themselves in the short term, so as to build a more secure future. Many people are not entirely sure what these types of loans are all about though, so below details a few of the facts that you should know when you are looking at this type of borrowing…

Open vs. Closed

Open or closed is one of the biggest questions that you will need to ask yourself when looking at procuring a bridging loan, as this can make the difference between a loan that is affordable and one that is not. The basic difference is that an open loan has no set amount of time in which to pay it off, whereas a closed loan has a certain time whereby the loan has to be repaid by. This obviously means that those with a less certain timeframe of when they are going to be able to pay off the loan usually go for an open one; those with more solid plans in place usually opt for a closed loan.

What are the Rates on these Loans?

As you might expect, interest rates on bridging loans are reasonably high when compared to regular loans, due to the fact that they are paid off in a relatively short amount of time. This means that although the rates are higher, they can work out cheaper, as the time that interest is accrued over is shorter. A typical loan of this type will have an interest rate of about 11-15% and this is usually over a period of about 12-24 months, although both of these figures can change in some circumstances. As with all types of loans, ensure that you shop around to make sure that you find the best deal before committing to anything.

How Much can I Borrow?

The amount of money that can be borrowed usually depends on the amount of equity held by a person or a business. When it comes to residential properties, the amount that someone can borrow usually never exceeds 80% of the equity. For commercial properties, up to 75% is available, as the risk associated with commercial loans is usually higher. Just because you are able to borrow this high amount though, it doesn’t always make sense to – only ever borrow what you can afford to pay back!

What can these Loans be Used for?

People take out these types of loans for a huge variety of reasons, but there are a few reasons that are more common than others. Perhaps the most common reason why individuals take out a loan of this type is so that they can move house before they manage to sell their own property, although there are some risks attached to this. For businesses, a loan like this is usually taken out so that they can finance themselves in the months before a major change happens in a business, whereby they can then pay the money back to the lender.

Where can I Get a Loan from?

There are a number of different places that offer this type of loan, all of which should be considered before making a final choice. From banks to private investors, people will be happy to lend the money as long as they are confident that they will get it back. Check online for details of potential lenders.