If you’re new to bridging loans, it can be challenging to understand their distinct features. However, if you’re considering taking one, knowing what sets them apart from other types of loans is essential. In this article, we’ll cover the five key aspects of bridging finance that differentiate it from other forms of financing. By the end of this article, you’ll clearly understand the basics of bridging loans UK without spending hours researching on the internet. So, keep reading to learn more.
What Is Bridging Finance?
Bridging loans are specialized financing designed to address short-term financial needs. They serve as a bridge between two different financial situations, filling in the gap between them. Like other types of loans, they come with an interest rate, which is charged monthly and compounded. When the loan term ends, you must repay the loan amount, including the principal, interest, and any fees associated with taking out the loan.
Important Aspects Of Bridging Loan?
Understanding the five characteristics of bridge financing is essential for anyone looking to learn about alternative forms of financing. These key features help explain how these specialized loans work in practice and shed light on the nature of this type of financing.
Bridging Loan Is A Secured Loan
In the UK, most loan types are secured, although some personal loans are available that do not require collateral. However, these collateral-free loans fall into different categories and are distinct from bridging finance.
Lenders are cautious when investing in the loan market and take great care to avoid bad loans. As a result, they conduct stringent credit checks to assess a borrower’s eligibility. It’s important to note that loan security is essential in bridging finance, as lenders need to protect their investments. Therefore, borrowers must provide collateral as a condition of the loan agreement.
The loan amount you can receive is partially based on the value of the collateral you provide as security. Your collateral must have a reasonable value. However, it’s important to remember that if you fail to repay the loan, the lender has the right to seize your collateral and sell it to recoup their money.
Diverse Nature Of Bridging Loan
Bridging finance is often mistakenly believed to be solely property-related, much like mortgages. While bridging loans are connected to the property, they are not limited to it. These loans offer a versatile and alternative financing option for businesses, property markets, and individuals seeking a home.
As such, bridging finance encompasses various industries and groups of people. Although fast bridging loans initially began in the UK property sector, they have since expanded to other areas. Nowadays, people take bridging loans for various purposes, including property investment, house purchasing or chain breaking, auction purchases, small business needs, property development, and refurbishment and renovation.
It’s important to know why you need a loan, as different lenders offer various products, and some have designed specific deals to meet particular needs.
Bridging Loan Is Easy To Get
Getting a loan through a bank can be a difficult and time-consuming process. Visiting the bank multiple times and preparing large volumes of documents can be arduous. Even after providing all the necessary documents, there’s still no guarantee of loan approval, making it a challenging and uncertain process.
As a result, getting a bank loan is not easy, nor is it a viable option if you require instant access to money. Alternative finance, particularly regulated bridging loans, provides a simpler and easier alternative.
Today, many P2P lending websites offer bridging loans, making them accessible quickly. It is why banks and high-street lenders are not heavily involved in bridge financing. Consequently, private lenders offering bridging loans are more common, with the total time to receive bridging finance ranging from days to a maximum of one month.
Bridging Loan Is Short Term
The primary feature that sets bridging loans apart from mortgages is their loan term. Bridging loans typically have a much shorter loan term that usually spans over a few years and must be paid before the term expires.
It’s easy to confuse residential bridging loans with mortgages, particularly as they are often used in the property sector. However, this can be problematic since mortgages have much longer loan terms, usually lasting over 20 years. While mortgages may be cheaper in the long run, bridging loans are a more viable option for short-term financing needs.
Bridging Loan Offer Large Amount
It’s a common misconception that the bridging finance market only deals with small loans that are not profitable for banks. However, this is not true. Banks hesitate to provide alternative finance because of the risk of defaults on large loans.
Bridging loans can range from thousands to millions of pounds. For example, if someone wants to purchase a large house, the finance needed can easily be a few million pounds. Similarly, bridging loans for business needs can also be substantial, depending on the value of the business.
Therefore, if you are considering bridging loans, remember that the finance options can be used to fund not only personal needs but also business ventures.
Conclusion
Bridging loans are a unique form of financing that offers a versatile and alternative option for those seeking short-term financial support. Understanding the five key aspects of bridging finance is essential to know how these loans work in practice and differentiate them from other forms of financing. The fact that secured loans have a diverse nature are easy to obtain, short-term, and can offer large amounts of finance makes bridging loans an attractive choice for many individuals and businesses. However, as with any financial decision, it’s crucial to carefully consider your options and seek professional advice before taking out a bridging loan.
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