How to Get the Most Out of Your First (or Next) Bridging Loan

A bridging loan can be just the thing to get you out of a pinch when time is a factor. It can also be great for temporarily covering the costs of major purchases, investments, property upgrades, and so on.

Sourced from a reputable lender and repaid promptly, bridging finance has the potential to be highly cost-effective. Even so, it is essential to adopt the right approach when applying for bridging finance in the first place in order to ensure you get the best possible deal.

Like all financial products, bridging loans are not suitable for all borrowers and all applications.

With this in mind, here is a brief overview of eight essential tips to help you get the most out of your first (or next) bridging loan:

• Consider whether you really need a bridging loan: Taking on any debt when you do not genuinely need to is inadvisable. Bridging finance has the potential to be comparatively cheap but still constitutes a form of debt. Irrespective of your intentions for the loan, it is worth considering whether other means could be used to cover the costs. Your own savings, for example, could be used as an alternative, with no interest or borrowing costs imposed.

• Remember that bridging finance is a strictly short-term solution: Bridging finance is most affordable when repaid as quickly as possible. Bridging finance should not be taken out with the intention of long-term repayment, under any circumstances. Monthly interest can be as low as 0.5%, but prompt repayment is essential. Unless you are 100% confident in your short-term exit strategy, reconsider your bridging loan application.

• Learn how to get a safe and competitive bridging loan: Sourcing a bridging loan is only advisable when it comes from an established, reputable, and fully FCA-regulated provider. Comparing the market before finalising your decision is important, as is checking the feedback and reputation of your preferred issuer. Organise an obligation-free consultation with your provider ahead of time and see if they are the right fit for you.

• Look beyond interest rates alone: A monthly interest rate as low as 0.5% (sometimes even 0.4%) can seem irresistible. However, additional fees and borrowing costs almost always apply when taking out a bridging loan. Arrangement fees, administration fees, exit fees, and so on can vary from zero to around 2% of the loan value. It is therefore essential to consider the bigger picture rather than basing your decision on advertised interest rates alone.

• Proactively minimise borrowing costs: Contrary to popular belief, interest rates and borrowing costs are not entirely out of the hands of bridging loan customers. There is much that can be done to keep borrowing costs to the bare minimum, potentially adding up to significant savings. Examples include borrowing at a lower LTV, providing assets of value that exceed the total costs of the loan by a clear margin, repaying the loan as quickly as possible, not borrowing more than you need, and presenting rock-solid evidence of a viable exit strategy.

• Consider your credit score and financial status: Issues like a poor credit score, a history of bankruptcy, or no proof of income will not count you out of the running for a bridging loan. But when it comes to the most competitive deals on the market, lenders typically show preference for those with a credible financial profile. If you have poor credit (or any other issue on your financial track record), it is imperative that you target the right lenders with your applications.

• Apply early, where possible: Bridging finance is often turned to as a last-minute funding solution in time-critical scenarios. As is the case with all financial products, applying early, where possible, is better. The earlier you apply, the more time you will have to explore the options available and secure a competitive deal.

• Consider the alternatives to bridging finance:  It is always worth considering the alternative options available, which may be better suited to your needs. Examples of this include secured business loans, second-charge mortgage products, credit cards, overdrafts, personal savings, specialist development finance, and so on. All of which will be discussed with your provider during your initial consultation, enabling you to find the perfect product to suit your requirements.