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Bridging Loans – Pros and Cons

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(Guest post by Amy Henderson)

Bridging loan is a special financial tool that is of immense help during the times of financial crisis, while buying a new property. Just as the name suggests, bridging loan serves the purpose of bridging the gap between selling the existing property and buying a new property. Hence, it is a loan type that can essentially be availed very quickly in the case of emergency. With that said, one should also know that the bridging loans generally come with a high interest rate and may not suit everyone, under all circumstances. Hence, it is advisable to evaluate the pros and cons of the bridging loans before opting for one.

The Pros of Bridging Loans

The bridging loan comes with its own set of advantages. These advantages essentially persuade people to opt for the bridging loans, even at the cost of paying high interest rates.

The best part of bridge financing is its instant availability to support the financial scarcity at the time of need. Another advantage of the bridging loan is the easy terms and conditions to avail the loan. One need not have a very good credit history to avail this kind of loan. However, the interest rates tend to vary based on the credit history of the borrower. Nevertheless, one will not be rejected outright just based on the past credit history.

The short tenure of the bridging loan is yet another advantage for many borrowers. One can and should get over this loan as early as possible. The very purpose of availing such a loan is just to bridge the gap.

The Cons of Bridging Loans

The obvious disadvantage of bridging loan is its high interest rates. Along with it, one must also be ready to pay the associated fees with the loan, such as legal and valuation fees. Apart from these fees, bridging loans can only be availed by a person, who owns a property and is not bankrupt at the moment of availing the loan. This loan cannot be availed by an insolvent individual. In a bridging loan, since the property is secured against the loan amount, the asset can be at risk, if one misses on the repayment.

However, we can say that overall pros of bridging loans outweigh its cons, considering the convenience offered by them. After all, they are capable of quickly financing the needs of a person at the time of crisis.

—
Amy Henderson writes financial advice on behalf of Norton Finance

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