Bridging loans only as a short term borrowing method

The key feature regarding a bridging loan is that it is a short term way of borrowing money. Bridging loans are not advisable as a long term method of raising money because interest is charged monthly and at a higher interest rate than can be obtained on medium and long term finance options. In addition the bridging loan providers are not interested in lending other than on a short term basis, therefore once the agreed bridging term is over, they are usually wanting their money back, as per their agreement when they paid out the loan.

Despite having a high monthly rate of interest, bridging loans can be the most cost effective way of borrowing money for the short term. This is because not only the monthly rate of interest has to be considered but also arrangement fees for setting up any borrowing facility together with any early repayment or redemption fees. There may also be legal costs and valuation fees to consider. Therefore as far as short term borrowing is concerned bridging loans can often provide the cheapest solution.

However, there are other advantages that bridging loans have to offer, which probably explain why they have considerably grown in popularity over the past year. Bridging loans can be put in place so that funds are ready to be used quickly. This is particularly useful in current times because when customers are let down in the ‘final hours’ by other lending sources, due to more stringent lending criteria, they are left having to find replacement finance that needs to be in place very quickly. In addition bridging loans have been very useful for people who have the opportunity to snap up a bargain in the struggling property market, provided they are able to complete the purchase quickly.

Because bridging finance offers a more flexible approach to lending, in that poor credit history and income confirmation is not so important, sometimes bridging can be the only option. Bridging loan lenders are concerned with the equity in the security being offered and also the method by which they are going to be repaid at the end of the term, consequently credit history and stable employment is not so important because they are not looking to lend over the long term. As mentioned above other lending sources have been struggling with tighter lending criteria, so it is very common that bridging loans provide the only option. However, as mentioned earlier they should only be used as a short term lending option, for example whilst waiting for the sale of a property to complete.