We often see the question about bridging loans buzzing around the Internet, so we finally decided to make an article about it and hopefully help you understand a few things about them.
According to Property Finance Partners, bridging loans are basically designed to help a lot of people complete the purchase of a certain property before actually selling their existing home, by offering them short term access to money at a really high-rate of interest. However, there are some other things that you need to know about bridging loans, so if you want to learn more about this, feel free to read until the end. Without further ado, let’s take a look.
What Are Bridging Loans?
Besides what we just mentioned above, bridging loans are also helping a lot of home-movers when there is a bigger gap between the sale and completion dates. This type of loan is also really helpful to someone who is planning to sell-on quickly right after making renovations to a home or help someone who’s buying at an auction as well.
As the banks and building societies are growing more reluctant to lend money and help people in need during these wake times of a financial crisis, there has been a big influx of bridging lenders on the market as well.
Understanding Bridging Loans – Things to Look Out For
Bridging loans are known for sometimes having pretty high-interest rates, and a lot of people are being warned to tread carefully when pursuing such a loan, simply because not paying enough attention can lead to having some bigger expenses at the end of the year. Some statistics say that if you take out a bridging loan you might end up facing costs which range between 1,5% a month, which adds up to 18% per year.
If you know exactly why you’re taking a bridging loan, it will be really helpful and you won’t be running into any unexpected costs or problems. Here’s why.
Bridging Loans are made to provide a quick amount of money, but they require you to pay them back really soon as well, in order to avoid the higher interest rates. So if you know that you will be getting some money in return, just a few days after taking the loan, you’ll be able to pay it before the interest starts growing more. A lot of people are doing the mistake of getting such loans without being sure that they can pay them back in a short amount of time, and this is where problems occur.
Here are two great examples of when you should be using a bridging loan.
- If you are planning to sell really quickly after renovating a home
Simply because you know that the house is going to sell and you will get access to a large amount of money in a short period of time, therefore being able to pay the loan back before interest grows high.
- If you are buying on an auction
Simply because you need a quick amount of money really fast, and bridging loans are known to provide you just that, in the shortest time period.