What makes people opt for bridging loans?

Could bridging finance be the answer?

If you need to borrow a large amount of money for a short period of time, your options are quite limited.

You could apply for a traditional bank loan, however, many banks have imposed such strict lending criteria on their loans that this option is a non-starter for many. Another option is to borrow money from friends and family, however, unless your relatives are fabulously wealthy, your chances of success are slim.

You could sell your house, car or other assets that you have, but in these difficult economic times, that may be easier said than done.

So if all these doors are closed to you, what options do you have left? One is bridging finance, which has become increasingly popular in recent years for a variety of reasons.

As previously mentioned, accessing finance from high street lenders has become all but impossible to those without gold-plated credit ratings, particularly if you want to borrow a significant amount.

When you apply for finance from a bridging loan company, your credit rating may not necessarily be a barrier to your chances of success.

Bridging loan providers often have flexible lending criteria and many will disregard your credit rating provided you can secure the funds against your home or other high-value asset.

This is one of the biggest advantages of bridging loans compared to traditional loans and a key reason for their increasing popularity.

Another reason why bridging finance has become a popular vehicle for many people is the fact that you can borrow significant amounts. Depending on the lender, you can borrow anything from £50,000 to £2 million provided you satisfy the lending criteria.

Accessing such a large amount of money is all but impossible with many of the other options on the table.

Bridging loans are commonly used to purchase derelict property. Developers turn to bridging loans to make such purchases as many traditional lenders refuse to provide funds for such transactions.

This works by you borrowing the money, using it to buy the property in question and then renovating it before selling it and repaying the loan.

Another popular use for bridging finance is to purchase a property before another buyer gets there first.

The reason why bridging loans are commonly used for this purpose is the speed at which they can be arranged. Provided you complete your application properly and provide all of the relevant information, you can have the funds in your account within ten to 14 days. As speed is of the essence in such a situation, bridging finance can be a good option.

You can use bridging loans for a variety of purposes, ranging from property purchases to credit repairs, so whatever your intentions, all that matters is that you have some form of property or land against which you can secure the funds.

There are many benefits to taking out bridging finance and more and more people are realising this.

However, bridging finance has its downsides as well. The biggest drawback is the cost of the loans. As they are designed to be a short-term funding solution, they come with high interest rates, which can be up to two per cent a month.

Also, if you opt for a loan with no set repayment date, known as an open bridging loan, you could end up owing significantly more than you borrowed if you fail to raise the funds to pay it back within a year or so.

Taking out a bridging loan is a big decision and to ensure you fully understand the pros and cons, seeking advice on bridging loans could stand you in good stead.