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If you have a sudden need for instant cash but are unable to free up any of your savings for several months, bridging loans could provide the ideal answer. Funds made available via bridging loans are usually accessible in 24 hours, as compared to a mortgage which can take weeks to set up.

This can be an excellent method of buying property at Auctions, or if you need to move areas for your work, for example and have to purchase a house, using a bridging loan may be necessary if you have not yet sold your property.

The terms of bridging loans are short; the maximum time taken to pay it back is usually a year. However, repayments are usually paid off much quicker, usually within six months or less. This is because bridging loans are an expensive way of loaning money, costing about 1% or more on month in interest. They should not be entered into lightly but only if you are sure you do not need to borrow the money for long.

The risk to the loan provider is higher than with a regular mortgage as they are relying on the sale of another property or a successful mortgage application. If this does not happen, the lendee may be left with a loan they cannot afford to pay back and loan provider may have lost a substantial amount of money. The loan provider will need to be convinced you can pay the money back and are not overstepping your budget.

Bridging loans are not only given for the purpose of buying property before you have sold your old house. Auctions purchases are often financed by bridging loans, which may have been agreed before the auction. Temporary cash flow problems or short term funds for business use can also be helped this way, if security can be provided. Buy-to-let, land purchase and property development can be financed this way as the purchase provides the collateral.

Bridging loans can be very useful if you know the money will be forthcoming in a short period of time, but should never be the first consideration. Try and look for alternative methods of raising the money, such as an investment from a business associate. Bridging loans are often seen as a last resort due to the high interest charged. However, businesses write this cost into their accounts and if they are creating money on the transaction it is a viable option.

Another option if you need to borrow smaller amounts may be to choose a 0% interest Credit Card. This type of card allows you to make purchases interest free for 6 months, giving you a little breathing space. Pay off the money over the next six months otherwise you will be paid interest, but as long as you have cleared your debt within 6 months it can be a good alternative to a bridging loan. The main disadvantage to a 0% credit card, however, is it is only available for smaller priced items, such as cars. For temporary cash flow problems, it may be just the answer.



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Thursday, September 15th, 2011 at 6:56 pm
Category:
Home Loans
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