What is a Bridging Loan?

A bridging loan is a financial option used to raise the capital required to meet short-term financial needs. The most common application of a bridging loan is the purchase of property. A bridging loan can supply the funds needed by the buyer to cover the time period before an existing property is sold. In this way, funds are available to purchase a house or any other property immediately. It prevents the property being removed from the market or being purchased by other buyers.

Borrowers can quickly pay back the whole amount of the bridging loan once their existing property is sold. In this way, borrowers can take advantage of the opportunity to purchase a property either for their personal use or for investment purposes. These loans act like credit cards that provide people with short-term financing resources without having them to utilise their own resources.

Bridging loans are not only available for the purchase of properties. They can be used for many other purposes as well, including unexpected tax bills and providing short-term cash to assist in the smooth operation of a business.

The one constant in a bridging loan is that it must be secured against property or land in UK. If you possess fixed securities in the form of property or land in United Kingdom, then you have the option of a taking out a bridging loan open to you.

What is a Bridging Loan Security?

Like all other loans and forms of credit to raise capital, bridging loans require the security to be in place. This security has to be property or land that is somewhere in the United Kingdom. The property must be owned by you, and must be registered in your own name.

How Can I Get A Bridging Loan?

If you want to obtain a bridging loan you will need to approach your lender of choice who will mark a lien or enter a charge onto the underlying property which you are using as security for the loan. You will then be credited with the full amount of the loan. After receiving the payment from the sale of your existing property, you will be in a position to pay back the bridging loan and the lender will remove the charge from the property you used as security.

A bridging loan is suitable for anyone that has the financial strength to repay the loan but does not have the immediate funds or cash in available to make the purchase they need. These loans help borrowers to pay for properties that they wish to purchase, by providing them with the required funds so they do not need to sell their personal assets.

What is Bridging Loan Term?

Bridging loans can cover either a specified or unspecified time period and the maturity of the loan depends upon the capability of the borrower to pay back the whole loan amount. Usually these loans are issued for a time period of 12 months but a borrower can repay the full loan any time before or after that time. Interest amounts are calculated at the end of the term when the borrower is able to pay back the loan.

For example; if a person gets a bridging loan of £100,000 and the monthly interest rate on this is 5%. Then every month, the loan generates interest payable of £5000. If the borrower decides to pay back the bridging loan at the end of third month, then they will have to pay the £15,000 of interest generated during those three months in addition to the original loan amount. This means that a total of £115,000 will be paid to the lender. If the borrower is unable to pay the loan amount by the end of third month, then this interest will keep on growing.

This interest rate is the reason why bridging loans are normally only suitable for the short term financing solutions. It is however usual for people with good credit ratings and a good financial track record to be offered a reasonable bridging loan rate and to be able to extend the period of their bridging loan if they wish to do so. There is no reason why a bridging loan cannot be repaid at any time the borrower wishes unless there was a fixed repayment date set at the time the loan was agreed.