When you need to take out credit of any type you should always look at the interest rates and how this will affect the amount you repay. It doesn’t matter if it is a mortgage, credit card, or loan they will all have interest rates, penalties for missed payments, and sometimes even a penalty for early repayment.
A bridging loan is no different in this respect and taking solid advice from a financial expert can help but there are other ways to compare bridging loans too that you can do from home. Before you start to compare the loans you need an understanding of what a bridging loan is and why you might need one.
What is a bridging loan?
A bridging loan is a way to acquire finance for a short period. It is not like a mortgage that may last for 25 years or even a bank loan that you can repay over some years. A bridging loan is normally no longer than a year and maybe as short as 3 months.
Why would you need a bridging loan?
The biggest purchase you are likely to make is your home and property in general costs a lot of money. A bridging loan can help you to finance a new home if your situation demands it. As an example, imagine that you have already found the new home you wish to move to but you are having some difficulty in selling your own home. When trying to offload a property you may struggle to find a buyer and a bridging loan allows you to purchase the new one before you make a sale.
What are bridging loans used for?
To assist in the purchase of any property whether that is residential or business while you are waiting on your own finance to arrive. You would need to have a property to put up against the loan and you can borrow against the equity in that building. Normally you would be offered up to 80% of the property’s equity.
What are the good points of bridging loans?
One of the reasons bridging loans help acquire a new home is that applications are processed very quickly. For such a large sum they are surprisingly quick. The application could be approved within a week. This means that you can get the home that you want before anyone else can buy it.
How much do they cost?
You want to get the cheapest rates obviously and to do that you need to know how much interest is payable. Unlike mortgages, bridging loans have a high APR due to them being such short term arrangements. The lenders need to make a profit on the loan in a shorter time than a bank would with a mortgage.
When you look at different bridging loans you will see that the interest rate is shown in a monthly form instead of annually. This is easy to misread and feel that it is costing less than it actually is. For instance, these loans might have monthly interest rates of 0.5% to 2% which doesn’t seem so bad until you translate that into a yearly rate. Say the lender offers you a 1.5% rate for a 12-month loan, you would actually end up with an APR of 18% which is far higher than any home loan or mortgage would normally be.
This is why securing the best rates is so important.
Securing the best rates
You can see in comparison tables online when you want to compare a bridging loan against another. There are a few things you need to know though to help you get the best rate on your bridging loan.
What you need to do to get the best rates
There are a few things lenders look for when deciding on your eligibility for a loan and the rates they will provide it for. When you look for a mortgage lender you can literally find them on the high street, a bridging loan is different. You need to find a specialist lender and that makes it harder to find the best rates.
You need a good property to put up against the financing. If the lender believes your home is of value and in a desirable area and will sell quickly then this will help you.
You need good credit, and by good, they mean clean. Bad credit will go against you for a bridging loan or will increase the interest rates.
You need to be able to access as many lenders as possible so a good broker is vital in helping you see as many options as possible.
To get the best rates you need a good property that will sell quickly and have enough equity to cover the loan. You must also have good credit to get a low-interest rate. A professional broker can help but you can also start comparing loans by looking online.