What is a bridging loan?
A bridging loan is a short-term financial option designed to bridge a gap between a short-term financing and long-term financing. The lender will require a number of checks and conditions to be met, due to the nature of this loan. If you are purchasing as a company these will differ and can increase. The main characteristics of a bridging loan include:
- They are short term, usually for a period of a few weeks to a couple of years.
- Bridging loans can often be approved and funded more quickly than traditional loans.
- Some bridging loans might offer rolled-up interest. This means the interest is added to the principal and the entire amount is paid at the end of the term.
- Bridging loans often come with higher interest rates compared to traditional forms of financing. This is because of their short-term nature.
Why a bridging loan when buying at auction?
When purchasing a property at auction, a bridging loan may be used to quickly secure a property. This is due to the short time frame between winning a bid and needing to complete the purchase. By attaining a bridging loan you can have more confidence and certainty when bidding for a property. Some people use bridging loans to secure run-down properties. They can then refurbish these properties and sell them on for profit and to pay off the loan. A bridging loan can be beneficial as you will know your limit for bidding. You will also know whether you will have anything left over for any refurbishment plans.
The Risks
The higher interest rates of a bridging loan can accumulate quickly. If the expected funds do not appear, e.g from a property sale, then you may struggle to repay the loan. It is crucial to have a clear cut strategy when taking out a bridging loan.
At Attwells Solicitors as part of our bridging loan service we will break down the clauses, terms and conditions. This is so you are fully aware of the risks involved and your obligations to your lender.
Our blogs and articles are correct at the time of writing.
These have been created for marketing purposes only and should not be considered as legal advice.
