With over 140 bridging loan providers how do you pick the best deal?
When a short term loan is required a bridging facility may well prove to be the most cost effective option. Virtually all finance agreements will cost the borrower money, understandable because the lenders obviously want to make a profit! However, the costs involved when taking out a bridging loan, or any other finance facility, can be made up from a variety of factors.
Lenders may charge all or some of the following in order to cover costs and to make a profit. The interest rate, which is usually a monthly rate of interest for a bridging loan, is probably the first cost that we compare when looking at the different deals available. However, it is also very important to look at the other costs and charges, which can include a lenders arrangement fee, broker fee, valuation fee, legal costs and exit or redemption fees.
By simply just comparing the lowest monthly rate of interest, this does not guarantee that you are getting the best possible bridging loan deal. To compare the different deals it is best to first of all decide how long you are likely going to have the loan. Second, calculate what all the other costs mean to you for each of the facilities. For example calculate any lender’s arrangement fee, broker fee and applicable exit or redemption fees. Then look at the different costs and charges made for legal and valuation fees. Finally calculate the interest charges for your estimated loan term. If you are unsure how long you are likely to have your bridging loan, do a number of examples and see how the costs compare for the different options available.
Once you have worked out the total costs for each of the available bridging loan options, you will hopefully be in a position to choose the facility that offers you the best possible deal. It is very important to not just select the lowest monthly rate of interest, because this deal may be accompanied by expensive arrangement fees, redemption charges together with high legal and valuation costs.
There are bridging deals available that have no arrangement fees but have a higher monthly rate of interest. These bridging loans can offer the best deals for facilities that are only required for a very short period of time. If a bridging loan is required for a long period, for example 6 to 12 months, then the monthly rate of interest will play a more important consideration when selecting the option that offers the best value for money.
Remember, if funds are required for periods longer than 12 months, then alternative methods of finance other than bridging maybe a better option.