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What Is A Bridging Loan? What Are Bridging Loans Used for? and how can I get one?

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If you want to take out a bridging loan, contact us today and speak with one of our friendly and knowledgeable advisors. We are waiting to answer any questions you have.

 

With over 20 years experience you can be assured of the very best help and advice from our team cal now on 0800 138 6001 or contact us via our website chat or contact form.

 

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A Bridging Loan what are the risks with these loans.

The majority of bridging loans have an end date or exit date. This is the date the funds you borrow for your Bridging Loan have to be paid back together with interest. The length of term for a bridging loan is usually between 12-18 months but can be as little as 48-hours and as much as 36 months.

 

Borrowers are entitled to pay loans back before the due date without a penalty - unlike standard loans from a bank or credit agency. This is one of the advantages bridging loans have over standard bank loans.

 

Interest is paid back on the date of final payment rather than monthly - which is another major advantage for borrowers.

 

Providing you adhere to the terms of the contract, you will not experience any problems. Complications can arise, however, if you do not pay the total amount back in full on the agreed date.

 

What Are The Risks of Bridging Finance?

 

Bridging loans are generally offered to property developers, landlords or people selling their home. All being well, there is little risk, but because of the unpredictable nature of buying and selling a property, delays and collapsed sales do happen.

 

The circumstances in which bridging finance is used can, therefore, leave borrowers short by the time the exit date comes around.

 

For example, let’s say you’re selling your house with a view to buying your dream home and there is a chain involved.

 

A sale further along the chain collapse and thus delays your buyer from completing the sale of your house. You don’t want to risk losing your dream home because other buyers are interested to take out a bridging loan.

 

Ordinarily, you will eventually sell your house, pay back the bridging loan and everything is fine.

 

However, if the chain collapses or your buyer pulls out, you are then left with an outstanding loan and no capital with which to pay it off.

 

If you should happen to find yourself in such an uncomfortable situation, there are solutions. However, in some circumstances, the capital you need to pay off the loan may not be forthcoming.

 

How Are Debts Settled?

 

When you take out a bridging loan the lender will ask you for security on the loan. You will also agree on a reasonable exit strategy that is easily achievable.

 

When purchasing property, the collateral is usually the property you are purchasing. If you are then unable to pay the bridging loan back, then you will need to agree on an extension of the loan or re-bridge with another lender.

 

In a worst-case scenario, house prices may fall, whereby the sale of the property does not cover the amount of the loan. You would still be liable to cover your debt.

 

Although this scenario is unlikely when buying a new home, there is a possibility it could happen to property developers that renovate a house but struggle to sell it.

 

Borrowers that find themselves in an unfortunate situation whereby they still owe the amount on the loan, can also face bankruptcy. However, this solution is very rare and would be declared as a last resort by the courts.

 

What Happens If I Can Not Pay A Bridging Loan Back On Time?

 

Bridging loans are short-term solutions which enable borrowers to fill a financial gap. Whilst bridging finance has its advantages, borrowers that are unable to pay back the loan face penalties.

 

The type of penalties you can expect are:

  •        Late payment fees
  •        Loss of possessions secured against the loan
  •        A county court judgment may be issued against you

 

Although the penalties may seem severe, borrowers that struggle to pay back the loan through no fault of their own will be given the opportunity settle the bridging loan debt or arrange another bridging loan to repay the first one.

 

Although the penalties for unpaid loans are harsh, cases very rarely end in disappointment. Providing you stay in contact with the lending facility and explain there has been an unexpected delay, you should be able to reach a satisfactory agreement.