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One of the popular loan options is a bridging loan which can be defined as a short term loan that can be given in order to resolve serious financial matters.

It is basically used as a “bridge” between a debt that has to be paid on a short notice and the credit that is available.

What is needed to know?

People may choose to avail bridging loans for a number of reasons which include investments in property, and development. Also, there is an increasing demand for bridging loans due to high street and private banks which are unwilling to provide larger home loans.

Some of the major facts of bridging loans are listed below:

  • Instantaneous Loans: They can be made available on a short notice and can help to fill in a financial gap
  • Availability of large sums: They allow a large amount of money often up to £25k or more
  • Cheap: These loans are applicable with lower agreement costs and a high monthly rate of interest which effectively speeds up the procedure
  • Easier: Bridging loans are easier to get regarding credit history or income proofs

May be invaluable in the right time

Bridging loans can be invaluable at times when a property purchase has to be made. This is mainly because they are quite expensive as compared to the normal loans.

Other uses

A bridging loan can effectively help as person in times when he is deciding to sell-on immediately soon after getting a home renovated or even at times of auction buying.

Risky Consequences

A short term problem can no doubt be resolved with the help of a bridging loan.

However, if things change unexpectedly, such as your mortgage application being rejected, then there are great chances that you might be facing serious consequences for instance you might have to lose your home.

Warning from the FSA

It has been mentioned by the FSA that some advisers might recommend a bridging loan to someone too soon whereas there could still be other better options.

In such cases, or in cases when you haven’t taken a bridging loan previously then you should be considering all the options and investigating carefully the situation before applying for a bridging loan.

Bridging loans alternatives

After going over the warning by the FSA, you might want to find out about other alternatives that are available to the bridging loans.

Below are the best three alternatives given to the bridging loans:

Option #1 – Secured Loans

If you are planning to own a second property, then a feasible option for you is to apply for a short term loan that can be secured against the property’s value.

Even though, it might lead you to an increased risk of getting your second property repossessed if you are unable to repay, but if you have a guarantee in place then this option is the most suitable for you.

Option #2 – Equity Release Loans

This option means that if your property’s value is now considered to be more than the total value of your mortgage, then it is likely for the lender to give you the permission to utilize this equity as a security for your loan.

It should however be noted that equity release loans are better suited to shorter periods.

Option #3 – Guarantor Loans

You can go for a guarantor loan if the amount you require is not a huge one. Like bridging loans, guarantor loans are easily available for people with poor credit score.

The only difference between a guarantor loan and the above two loans is that a third party will be involved in a guarantor loan who will be responsible for the repayment of loans if the borrower fails to repay.