cash stack icon

How to get a bridging loan

piggybank icon

Editorial Team

Moneyfactscompare
Advertisement

a guarantor explaining loans to a young couple

At a glance

  • A bridging loan is a short-term loan which is designed to help you afford something immediately
  • Applying for a bridging loan is different to other forms of financing, such as a personal loan. You’ll need to consider your ability to make the interest repayments and an exit strategy
  • Before taking out a bridging loan, make sure to consider all financing options available. 

A bridging loan can be a useful and flexible form of finance when buying a new property. But applying for a bridging loan is different to other forms of lending. In this guide we’ve explained what a bridging loan is, and some considerations you’ll need to make during the application process.

What is a bridging loan?

A bridging loan is a short-term loan which is designed to help you afford something immediately. Usually, it is used when you buy a new property before selling your existing one.

For example, suppose you’re selling one house at £200,000 and buying another at £250,000. However, the sale of the first home has slowed and you wish to buy the second home as soon as possible.

After putting down a deposit of £75,000, you decide to get a bridging loan of £175,000 to finalise the purchase of your new home. You will then pay a monthly interest rate until the sale of your £200,000 property goes through. At this point you can repay the lender for the original capital borrowed.

Of course, there are other creative uses for bridging loans like paying for home renovations. In this example, you can take out a small advance to get your renovations started. Once another, more affordable form of financing is approved (like a remortgage or personal loan), you can use this to pay off your bridging loan.  

How to get a bridging loan

Applying for a bridging loan is different to other forms of financing, such as a personal loan. You’ll need to consider your ability to make the interest repayments and an exit strategy. Below we’ve listed some considerations you’ll need to make in a step-by-step process.

Speak to our partner today

In need of a bridging loan? We've partnered up with several different providers who could help you find your perfect loan. Click here to read about them in more detail. 

Figure out your shortfall

Whatever the use for your bridging loan, the first step you’ll need to take is considering how much you need to borrow.

In the example above, this sum was £175,000 but it can differ according to your own unique circumstances. After determining this sum it is also worth considering other lending options available to you. For example, you could consider a second charge mortgage.

Create a repayment plan

If you still believe a bridging loan is the best form of financing for you, then you’ll need to work on a repayment plan before you find a suitable lender. This includes considering your ability to make monthly interest repayments since bridging loans are short-term lending options.

Once you can afford this, then you’ll need to plan your exit strategy. This is an important part of getting a bridging loan, as it will demonstrate to your lender that you have a plan to repay the borrowed capital.

Timescales are important when it comes to your exit strategy, so one tip is to always take a bridging loan over a longer period than you deem necessary.

This is especially true if you’re planning on making the capital repayment by selling a property. It’s not unusual for property sales to take longer than expected, so give yourself enough time if your buyer falls through.

Remember fees

Bridging loans often come with additional charges like legal and valuation fees. So make sure to factor these costs into your ability to repay your debt.

Apply for the loan

Once you’ve finalised your exit strategy you can start thinking of applying for a bridging loan.

Make sure to use the Moneyfactscompare.co.uk bridging loans chart to find the lowest rates on the market.

When you’ve found a suitable lender you may also need to organise a few additional documents when readying your application. It isn’t unusual for lenders to ask for proof of income, as evidence that you can afford the monthly interest repayments, and detailed information on your property during the application process.

Pay back the loan

Bridging loans are usually quick forms of financing, and you should see the money in your account between five and 21 days.

From here it is important to stick to your repayment plan. Not only can defaulted payments affect your credit rating, they could see your property repossessed. This is because bridging loans are secured loans, and you will need to put up some form of collateral before your lender approves your bridging loan.    

Is a bridging loan right for me?

As mentioned previously, there could be other forms of financing more suited for you.

To evaluate these options speak to our preferred brokers, Loans Warehouse. With access to a range of products and a number of highly-skilled brokers, Loans Warehouse can help you choose your next most affordable loan. 

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

a guarantor explaining loans to a young couple

At a glance

  • A bridging loan is a short-term loan which is designed to help you afford something immediately
  • Applying for a bridging loan is different to other forms of financing, such as a personal loan. You’ll need to consider your ability to make the interest repayments and an exit strategy
  • Before taking out a bridging loan, make sure to consider all financing options available. 

Moneyfactscompare.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfactscompare.co.uk will always be from news@moneyfacts-news.co.uk. Be ScamSmart.

Moneyfactscompare.co.uk will never contact you by phone to sell you any financial product. Any calls like this are not from Moneyfacts. Emails sent by Moneyfactscompare.co.uk will always be from news@moneyfacts-news.co.uk. Be ScamSmart.