Bridging loans are short-term loans that can be used for a number of purposes, and there are several benefits to using them.
Bridging finance is versatile
The bridging finance market grew out of the need for house buyers to complete house purchases quickly. Many house buyers are stuck in a house buying chain, relying on the sale of their existing house to finance the purchase of a new home. If there was a delay in the buyer of their existing home completing the purchase, this could result in the purchase of the new home being threatened. Bridging loans provided the short-term finance to complete the purchase of a new home before the existing home purchase had been completed.
Since the early days of bridging loans, their use has widened to include purchasing property at auction, refurbishing property and financing new build developments. Businesses can use bridging loans to raise short-term working capital.
Bridging finance is a short-term commitment
A mortgage can last up to 25 years with the borrower committed to paying monthly amounts throughout the whole loan period. A bridging loan can be arranged to last from a week to 12 months, though it is possible to arrange a loan for longer periods. As long as the borrower can repay the loan within the loan period then it can be the ideal finance solution.
There are no penalties for early payments
Most bridging finance lenders, unlike mortgage lenders, do not charge a fee for early repayment of the loan. If, for example, a borrower has a 12-month bridging loan, and finds that they have the funds to repay the loan after 6 months, they can do so without incurring extra fees. Interest is only paid while the loan remains, so early payment saves interest.
Bridging loans can be useful for people with a poor credit history
Unlike most loans, people with poor credit history may be able to obtain bridging finance. The lender is concerned about how and when the loan can be repaid. The borrower must provide security for the loan, normally property. If these conditions are met, then this can be more important to a positive loan decision than a person’s credit history.
After the bridging loan has been repaid, this information will be passed to the credit scoring agencies and will probably result in the borrower’s credit score being raised.
Bridging finance is quick
Bridging finance can be raised quickly, often within two weeks. This compares to a mortgage, which can take over two months. This is why borrowers often use bridging loans to purchase property quickly, then repay the loan after a standard mortgage has been completed.
A bridging loan can make you a preferred buyer
Due to the speed of bridging loan, a borrower can complete the purchase of property quickly. This offers an advantage when putting in an offer for property. The seller may prefer either a cash buyer or someone who can complete the purchase quickly.
If you need a bridging loan, Ascot Mortgages can arrange it for you.