Bridging loans are uniquely flexible and accessible short-term financial products. Designed to bridge finite gaps in the borrower’s cash flow, bridging finance can be used for almost any legal application where time is a factor.
Given the inherent delays and complications when applying for more traditional loans and mortgages, it’s easy to see why bridging finance is growing in popularity. From the moment the application is submitted, it can take as little as 3 to 5 working days to access the funds required.
Nevertheless, this doesn’t mean that every bridging loan represents the same outstanding value for money. As is the case with all loans, it’s important to shop around to find the best possible deal. Even then, there may be measures that can be taken to bring borrowing costs down to absolute minimums.
Typical Rates of Interest
Truth is, there’s really no such thing as a ‘typical’ rate of interest on a bridging loan. The reason is that as every bridging loan is 100% unique, the same can also be said for its respective rate of interest.
Depending on the size and nature of the loan…not to mention the lender you work with…it’s possible for bridging loan interest rates to be as low as 0.5% per month. Interest rates vary in accordance with the length of the repayment period, the size of the loan, the financial circumstances of the borrower and so on.
Nevertheless, what all bridging loans have in common is the requirement to repay the balance in full within a short period of time. This means that while monthly interest rates are extremely low, they may amount to an elevated annual interest rate in the case of non-payment.
Hence, the importance of ensuring your loan is repaid in a timely manner.
Interest Vs Borrowing Costs
One of the biggest mistakes you can make when assessing bridging finance is also one of the most common. That is, to forget to consider any other borrowing costs that apply.
It’s natural to be blinded by what appears to be an unbeatable rate of interest. Nevertheless, value for money can be impacted both positively and negatively by the rest of the borrowing costs that apply. In some instances, lenders attach loan administration fees, completion fees, early repayment fees and all manner of additional costs to their loans. By contrast, others are committed to reducing or eliminating such fees where possible.
Hence, it’s important to consider interest rates and borrowing costs as part of the same package. Only this way will you be able to determine the value for money (or otherwise) of the loan.
Reducing Interest Payments
The easiest and most effective way to ensure you get a good deal is to work with a specialist broker. Have an independent expert compare as many deals from specialist UK lenders as possible, in order to access the lowest possible rates of interest.
Otherwise, interest payments can be reduced by considering repayment periods of different lengths, the provision of security that far exceeds the value of the loan and generally demonstrating your capacity to repay the loan as required. Again, your broker will talk you through the available options for strengthening your case and reducing overall borrowing costs on your bridging loan.
Article by iConquer