Often you may need a short-term loan in order to bridge the gap of debt, which is due with the credit that is available to you. These kinds of bridging loans can help you to tide over the situation when you are under financial pressure. However, under certain situation, this kind of loan can prove to be too expensive.
Let’s try to understand this bridging loan in little more detail. In case you are interested to buy a property before you sell your existing property, then you need a short-term access to a big amount of money in order to make a deal. In such case you can get a loan at much higher interest rates. This kind of loan also required in order to renovate your new house before you sell your existing house so that you can move to a new house completely furnished as per your need.
Most of the banks and other housing societies are not ready to offer loan for such shorter duration and therefore few bridging lenders have appeared in the market. However, rate of interest for property development finance can be pretty high. On top of that very high administration fees are charged. The borrowers need to be very careful while seeking such loans as you can be totally ripped off. The rate of interest for such loan can be 1.5% per month, which is 18% per year.
Who are customers of such loans?
Usually most of the big landlords or property developers prefer to seek such bridging loan. Also, people who buy property in any kind of auction also prefer such loans as they need very quick mortgage. Many wealthy and asset rich borrowers often need such loans for residential properties.
When should you prefer for such loans?
There are number of reasons why bridging loans are often sought after by people. Mostly those who want to make investment in property, develop them and then resale with high margin. Also, nowadays more people are seeking such loans as most of the private banks take too much time in processing any home loan application. Some people also consider such loan as another alternate to any other conventional loan.
If you are applying for such loans, then you need to plan proper strategy for exit so that you can save some cost of the loan. For instance, you can take conventional mortgage or sell any property after acquiring the property. However, you must check all the risks associated with it.
This type of loan must be sought under certain compelling situation. You must remember that you have to shell out hefty legal fees as well as administration charges, which are not always very transparent. Therefore, you can always find certain surprise associated with such kind of loan.
Who offers such loans?
It does not matter, if the lender company is big or small. It is crucial they must be regulated by Financial Conduct Authority (FCA) who works as watchdog. Therefore, if you ever need such loan then you must look for any FCA approved loan provider.