Loans almost always involve a credit check, but you might be surprised to find that even if you have a poor credit rating, it doesn’t necessarily mean you can’t get a bridging loan. This article will explain why.
In hard financial times, many people get into financial difficulty and cannot make debt payments on time. Often, this is not through deliberate intention; they may have been made redundant through no fault of their own, or be off work through sickness or an accident.
Even if a person currently earns a good salary, their past credit history can affect their ability to obtain a loan.
Many people believe that if they have a poor credit history they will get turned down for all loan application. This is probably true for many forms of loans such as mortgages, credit cards, and bank loans, but is not necessarily the case for a bridging loan.
What is a bridging loan?
A bridging loan is a loan used to raise funds for short periods. It is typically used in the house buying process when a person wants to complete the purchase of a new house but they have not yet sold their existing one. A bridging loan is taken out then repaid when funds are available from the sale of the existing house.
Most bridging loans last for 12 months or less and must be secured against an asset, usually property.
Why bridging loan companies are flexible
A mortgage lender is concerned that the mortgage repayments will be paid by the borrower for the entire length of the mortgage period. A bad credit rating means that they regard people with a poor credit history as a high risk of defaulting on payments. For this reason, they may refuse a mortgage application.
A bridging finance organisation is more concerned about the value of the security used for the loan. As part of the loan process, the bridging company will receive a valuation report on the property used as security. As long as this value covers the loan amount, they may be prepared to provide a loan. They know that if the loan is not repaid, the property can be sold to provide the repayment funds. The value of the property is more important to bridging finance companies than a poor credit history.
Some larger lenders may not provide bridging loans for people with poor credit history. Ascot Bridging Finance works with a number of specialist lenders who are flexible and prepared to look at each application in detail rather than follow set rules that they apply to people with bad credit rating scores.
Can bridging loans help credit history?
If someone with a poor credit history takes out a bridging loan, then repays it on time, this transaction can be recorded on their credit history and can help improve the credit score.
It can also help if a person improves their credit score before taking out a bridging loan as this could increase their chances of a successful loan application. There are a number of things that can be done, such as paying all debts and bills on time, avoiding payday loan companies, not overusing credit cards (especially to take out cash), and not repeatedly applying for more loans.
How to obtain a bridging loan with a poor credit score
If you want a bridging loan and you have a poor credit score, the first thing to do is talk to an expert advisor at Ascot Mortgages. The advisor will be able to look at your individual situation and make an initial assessment of your circumstances. You need to be honest and open about your credit history so that the advisor has all the facts.
The advisor will also be able to tell you what information and documentation a lender will require. The borrower will normally be asked to nominate a property for security. Other assets may be considered, including business equipment or other high-value items.
The loan applicant must also supply an exit strategy, which is a plan for when and how the loan will be repaid. This must be practical and easily achievable; for example, if repaying the loan is through the sale of property, provided that the price of the property is more than enough to cover the loan and it should easy sell within a short period, this could be the basis of an acceptable exit strategy.
A bridging loan is either closed or open. A closed bridging loan has a set repayment date, while an open loan doesn’t, though payment is expected before the loan period runs out. There should be no fees for early repayments.
After an initial assessment by Ascot Mortgages, they will approach one or more bridging finance companies to obtain an initial loan approval. If a loan is available, then a decision in principle should take less than a day.
A business may have a poor credit rating. Perhaps they have been late to pay invoices or had small client court claims made against them. In a similar way to individuals, as long as they have assets to act as security, a bridging loan application may succeed.
A business expert at Ascot Mortgages can assess your business requirements and find a suitable bridging finance lender.
In theory, there is no maximum amount of a bridging loan. Generally speaking, you can expect the maximum loan allowed to be based on a percentage of the value of the property used as an asset, usually up to 75%. Many lenders will not provide loans for less than £25,000
Risks and costs
Like any loan, there are risks attached to bridging loans. This is why it is important to seek advice before going ahead. Provided that the exit strategy is sound, the risks should be minimized.
Interest rates on bridging loans are generally higher than for other loans. The borrower will also need to pay valuation, legal and arrangement fees.
If you think that a bridging loan is suitable for your situation, even if you have a poor credit history, talk to Ascot Bridging for assistance with the application process.