For certain purposes bridging loans are very useful
Bridging loans are a useful way of borrowing large sums of money for a short period of time. Bridging loans can usually be arranged and put in place very quickly and are quite often the cheapest way to borrow money over short periods of time. It is important to remember that bridging loans are a short term method of raising finance and should not be used as a long term means of borrowing money. This is because the interest rates for bridging loans are charged monthly and because they are intended as a short term method of borrowing the monthly interest rates for bridging loans tend to be higher than other longer term finance options.
Because the monthly rates of interest for bridging loans tend to be higher than other longer term finance options why is a bridging loan a cheaper short term option? This is because the set up costs or arrangement fees combined with early repayment charges or early redemption penalties are usually cheaper for bridging loans than long term finance facilities. Therefore over the short term the higher monthly interest charges only make up a small proportion of the total cost for the bridging loan facility. This is why a bridging loan is quite often the cheapest way to raise money over a short period of time, but the advantages to lower set up and low or no early redemption charges are outweighed over longer periods as the cost of the higher monthly interest rates start to have an effect on the total borrowing cost for the bridging finance facility.
If you are looking for a short term method of borrowing, bridging loans have other advantages in addition to being the cheapest option. For example bridging loans can quite often be put in place within 48 hours of initial application, which can be very useful when funds are required urgently. Bridging finance providers often have more flexible lending criteria than other lending institutions. This is a useful advantage provided by some bridging loan facilities as they quite often take into consideration past or existing credit problems and missed payments. Bridging loans will require property for them to be secured on. Many finance facilities will only accept certain types of property and be quite stringent with regards to the condition of any property that is offered as security. Bridging finance facilities can be often be secured using property that is in a poor state of repair, derelict and in need of restoration, renovation and modernisation.
When taking into consideration the many characteristics that bridging loans have, they are very useful as a means of borrowing when funds are required quickly, or when money is required to carry out restoration or building work to property that is in a run down state of repair.