Will a poor credit rating affect your bridging loan application?

Thursday, 02 February 2012 02:59

Have you considered a bridging loan?

If you have a chequered credit history, obtaining a mortgage, bank loan or credit card can be difficult if not impossible in some cases.

Your credit rating is one of the key criteria used by banks to assess much of a risk you represent, so even if you have got your financial house in order recently, past problems can come back to haunt you.

This is not the case with a bridging loan.

Bridging loans are one of the most popular ways of borrowing for those who have had money troubles in the past and could work for you given the right circumstances.

A bridging loan is a short-term financial solution which offers you a quick way of raising a lot of money. A bridging loan company will usually expect their money back within 12 months, although this period can be extended if you opt for an open bridging loan with no set repayment date.

One of the most important points to understand about bridging finance is that it is expensive. Interest rates can be as high as two per cent a month due to the short lending period, so you must bear this in mind when deciding whether to take one out.

A good idea may be to seek bridging loan help either from a provider or an independent financial adviser. They will be able to explain in plain English how these loans work and whether they are your best option.

One issue they will be able to discuss with you is your credit history.

If you have CCJs or are in arrears with your mortgage, loan or credit card, you may qualify for what is known as a non-status bridging loan, provided you meet certain criteria.

A non-status loan is one provided regardless of a borrower's income status or credit history. That means any financial problems in the past can be disregarded.

For this to be the case, you must have two things - some form of security and a credible exit strategy.

Security usually takes the form of a residential property in the UK. Some lenders may be willing to consider other assets, however, so it is worth exploring this with various providers.

An exit strategy is your plan for repaying the loan. Many people take out a bridging loan to buy a new property while they are waiting for their existing home to sell. Once their home has sold, they use the proceeds to repay the loan.

This is a common exit strategy, however, with the housing market enduring a difficult time at the moment, some lenders may be reluctant to provide you with the funds due to the fact you may struggle to sell your house quickly.

When it comes to taking out bridging finance, there are numerous benefits. As well as having your credit rating disregarded, these loans are quick to arrange, easy to apply for and can be used for various purposes.

However, you should be in no doubt about the expense of bridging loans and the consequences of failing to meet the repayment date. Some lenders may be happy to extend the repayment period while others may have stricter policies in place.

These are all issues you can raise with a financial adviser, so it may be wise to seek help before you submit an application.

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