Forget loans from banks. The hottest and best loan schemes in the UK, where there are tens of thousands of military veterans spanning numerous campaigns in the Balkans, Iraq and more recently Afghanistan, are bridging loans.
Here are the reasons why:
The bridge loan is specifically designed as a short-term scheme that acts as a financial bridge until a traditional loan can be set up with another lending institution. It’s ideal for homeowners who want to close a deal on a new home while they are waiting for cash from a sale on their old home. Businesses can also use a bridge loan to move a project forward to completion. The bridging loan is also a great strategy to use when investing in buy-to-let properties.
The main feature that borrowers find attractive about a bridge loan is the speed with which this scheme can be arranged. Securing this loan can be done in under 48 hours. Additionally, terms can be decided upon quickly because the documentation needed for this loan is less demanding. The lender is more flexible because he looks more closely at a borrower’s individual financial situation, rather than relying on a computer-generated financial report.
Some facts to digest
- The competition is keen, guaranteeing competitive interest rates and terms. And demand for them is outstripping traditional mortgages.
- A bridge loan can be written up in 48 hours or less.
- They are ideal for businesses who need a quick infusion of cash.
- The average bridge loan in 2012 was £450,000.
Before taking out a loan
Here, then, are two tips to consider before taking out a bridge loan.
- A bridge loan can be expensive. In the current market, you can expect to be charged rates of somewhere between 1 and 1.5 percent, which works out at 12-18% APR. If you compare that with the typical loan from a bank such as CB Online, you can see that you would be paying a lot more interest. It behooves borrowers to shop around for the best rate.
- You must have a succinct exit strategy. In other words, you should have a clear understanding of the terms and conditions. These loans are usually set for about four to six months. In certain circumstances, one year terms can be arranged. A plan must be in place to pay it off when the note is due.
Bridge loan data shows that £439 million was loaned to borrowers in the last quarter of 2012. The total for 2012 was £1.57 billion. Find out more about them here.
Choosing a lender
Finally, here are tips on what to look for in a bridge loan lender:
- Pick the right lender. Bridge lenders specialise in different types of bridge loans. Some lenders favour small loans regulated by the FSA while others are strictly into large commercial loans.
- The type of security required will also vary from lender to lender. By studying what a lender specialises in, the odds of securing a bridge loan greatly increases.
It pays to shop around, and visit a number of lenders in order to find the loan scheme that fits your financial situation.