Deciding to take out a bridging loan requires thorough research and careful consideration to ensure it is the best option for you and your financial circumstances.
Here are three important aspects of bridging loans that you should always take into account.
1. Be Clear on What a Bridging Loan Involves
If this is the first time you are considering a bridging loan, it is vital you fully understand how they work, what is expected of you, and what the interest rate and potential fees will be.
Whether it is for an urgent, quick bridging loan or a more complicated scenario, getting timely and correct advice can ensure you receive the best quote that’s also appropriate for your financing needs. As the interest rate on bridging loans is typically higher than other loans.
2. Carefully Consider Your ‘Exit Strategy
Before applying for a bridging loan, you must know how you will repay the amount you receive, as well as the accrued interest and associated set-up fees.
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The interest rate on bridging loans is typically higher than standard longer-term loans as the borrowing duration is shorter. Your lender will want to know in advance how you will repay the total loan as part of your exit strategy.
You should plan to repay the bridging loan in one of the three following ways:
- From a property sale
- Funds that are due to you, but you have not yet received
When it comes to your exit strategy, you will need as much information as you can obtain on how you will repay your loan and how long it will take you.
It can be tempting to opt for the shortest repayment term available to minimize the total interest you will pay. However, you also need to account for any potential delays – a deadline missed on completing a property sale, for example.
This could mean you miss the end payment date for the loan, and so run the risk of incurring late payment penalties from your bridge finance provider.
And if you are planning on refinancing a property to repay the bridging loan, obtaining an indication that your re-mortgage will be approved can reduce the chance of you being unable to settle the loan amount.
Your finance provider will want to see as much evidence as possible that you can repay the bridging loan as per the loan agreement before approving your application.
3. Always Get the Best Advice
As there is a lot to consider when it comes to applying for a bridging loan, it is important that you get the very best advice, especially if this is your first time applying for bridge finance.
Working with a bridging loan specialist will help you to decide whether this type of finance is right for your circumstances and ensure the application process runs smoothly and on time.
Working through our three essential considerations, you should now have everything you need to decide whether a bridging loan is a right decision. And if so, you can start the application process with confidence.