Bridging finance allows homeowners to purchase a new home while they wait for the sale of their existing home. Business owners can also benefit from bridging loans UK who want to cover operating cost while long-term funds are being made available. There are many benefits of using a bridging loan, such as flexible lending criteria, can be arranged in a short period of time, no income proof or credit score required and so on.
However, before you take out bridging loan it is vital to keep several points in mind. Applying for the bridging loan without proper planning and forethought can put you in serious financial crises. To help you understand bridging finance better, we have listed 6 key points that you should consider before you opt for a bridging loan.
6 Important Things to Consider Before Taking Out Bridging Loan
#1 Familiarise yourself with the bridging loan
When you are planning to take out a bridging finance, familiarise yourself with everything involved in the process. Understand how bridging finance works, associated fees and the necessary documents, especially if you are taking for the first time. As bridging finance is specifically designed to bridge the financial gap during a property or land purchase, not all circumstances are same.
Hence, getting advice from an expert is highly recommended. He will aware you of all the circumstances and risks that are involved with bridging finance, especially when your situation is complex. The expert will not only help you understand the ins and outs of the bridging loan, but also help you get the best quote based on your requirements.
#2 Assess the value of your property
Whether you want to raise funds for buying a new property, refurbishment work or property development, bridging loan is basically taken against the value of the property you own. A property valuation determines what type of bridging loan you can take and how much you can borrow. Therefore, having an accurate valuation of the property is a must.
It is advised that you hire a property surveyor that can help you carry out a series of checks to assess the value of the property by checking every room and corner. Based on your property condition, age, size, structure, fittings and surrounding amenities, the surveyor will quickly give you an idea of your property’s worth. He may also help you identify issues with your building that may not have known to you before.
#3 Think about you will repay the loan
Having a clear exit strategy about how you will repay the loan is of the utmost importance. This assures the lender that the repayment will be completed on time. Either you are waiting for the sale of the property, planning to refinance a property with a long-term loan or you are waiting for a huge payment that is not received yet, whatever your reason, you must communicate clearly with the lender.
Whenever you are expecting to receive payment that you will use to repay the loan, always keep a few days of buffer time. That is because delays are common, and you surely don’t want to end up paying penalties due to no fault of your own. When thinking about your repayment plan, you should also take into account the interest rates and other fees that may add up to your borrowing amount, so you can get an idea of the total loan amount.
#4 The term of the loan
Since bridging loan is a short-term loan, having a definite term period is more crucial than any other forms of loans. While some lenders may give you liberty to negotiate on the loan term, most bridging loan lenders have their fixed term. Therefore, inquire about what would be the pre-payment charges if you decide to pay early and what would be the late fees if you fail to pay on time.
Moreover, ask your lender what would be the impact of the delayed payments on the interest charges. Calculate the exact interest amount you are supposed to pay every month against varying term period. You will be required to pay either monthly interest, or full amount with interest at the end of the loan duration.
#5 Interest rates and other costs
How much interest would you afford to pay for borrowing? As the bridging loan can be arranged quickly without strict lending criteria, the interest rate is often higher than other traditional mortgage and loan. Besides the monthly interest rate, you may need to pay an arrangement fee, valuation fee, broker fee, legal fee and exit fee, depending on the amount you wish to take as bridging loan and duration of the loan.
Calculate the total borrowing amount including all the fees and check if it is worth taking. You can also consult a bridging finance company that can help you compare quotes from different lenders, so you can choose the one that is the most suitable to you. However, remember that, don’t be deceived by a lender who is advertising extremely low fees. They may offer low interest rates in the beginning and charge hidden fees later, which can turn out more expensive than you have thought.
#6 Choosing the right loan provider
Taking out a bridging loan is a huge decision and surely you don’t want to get into the wrong hands. Selecting the right bridging loan provider is crucial to ensure that your application processes on time and without an issue. An experienced bridging loan solicitor will help you go through all the legal formalities quickly and smoothly. In fact, a reputed solicitor will play a key role in deciding how fast you are able to get the bridging loan.
While choosing the right bridging loan provider, make sure they are transparent and accurate in their communication. If they are not transparent in their communication, this could damage all the parties involved. Moreover, they should introduce you to all the available bridging finance products and suggest the best suitable product based on your specific requirements.
Keeping these key factors in mind before taking out bridging loan will certainly help you in making a wise decision. If you think you can raise the required funds through bridging loan and have the capacity to repay it in a short period of time, then bridging loan is the most efficient and flexible option. At BridgingFinance4U, we have been offering bridging finance solutions for more than 8 years in the UK. We are renowned for our high-quality bridging loan products through reputable lenders and competitive interest rates that are hard to find anywhere else. Click to Blog