When looking into bridging loans for your situation, you may have wondered what exactly the benefits are of them against other types of loans. Here, we have tried to lay out what we think the most important pros are of bridging loans. Of course, when looking at these, it’s important to bear in mind the CONS OF A BRIDGING LOAN as well! You will need to put some thought into whether a bridging loan is the right option for you against any other type of finance, and while this is dependant on your particular situation, here are the benefits of a bridging loan.
They are quick, very quick: When it comes to applying for a bridging loan, they can be done within 5 day to 2 weeks, and in some cases, if you have a good financial relationship and banking experience with the bank you’re taking a loan from, it can even be done within a matter of hours! Speed is in fact one of the main appeals of a bridging loan as people know when they buy a property at auction, they can use the bridging loan to pay for it almost instantly!
Flexibility: Bridging loans have a great deal of flexibility for a few reasons. The first is that you can choose between an “open” and a “closed” bridging loan. A closed one is a loan in which there is a definite end date for the lender because the borrower has already arranged and set up long term finance so there is a clear end to the loan. An open bridging loan is one in which there isn’t a fixed end date, but rather a certain amount of months before the loan should be repaid, usually between 9 months and a year. The other type of flexibility is in terms of repaying the loan. While most loans require you to make monthly repayments that include the interest, bridging loans don’t have this requirement. They have to be repaid in full along with interest at the end of their terms, however, you CAN repay the interest in monthly repayments if you prefer, that way at the end of the term, you’ll only have to repay the actual loan amount.
Low interest rates: While bridging loans once had a high amount of interest, due to how competitive the market has become now that they are becoming more and more popular, interest rates on them have taken a nose-dive. Online banks have now begun to offer these loans at as little as 0.45% monthly interest. It is always important to check the interest rate of the loan you’re looking at though and make sure you can pay it in full at the end of its term!
Facilitation: While many loans are used for things such as purchasing beyond means, or consolidating debt, bridging loans are designed to help something else happen. They are there as a stopgap of liquid cash to help you secure an asset, and often will be used to facilitate you in other things. This means that by their nature, you won’t rely on them them to buy depreciating assets and thus are much less risky than other loans!
We hope this post has helped you out, and if you need more information on what bridging loans are, then head over to this post to find out a little bit more!