When borrowers need to buy new houses or properties. But they do not have unlimited funds for the same, then it is advised that they get bridging loans. It is advised that one should always investigate all the options, including different types of loans from the respective lending company. Before taking a final decision regarding loan type. Four categories can be used to classify loans by banks and other financial institutions. In 2012, when the UK was still in recovery mode from the recession, then business owners were looking for bridging loan providers. They wanted lenders who could offer them affordable rates and terms at the same time. There were very few options available in the market. Because most of the businesses were still going through tough times due to recent economic downturns in the country. However, after a few years of recession, bridging loans are still in high demand by borrowers. Those who need to buy new properties. The following is a brief discussion on various types of bridging loan providers, including first, second, and the third charge bridging loans:
Key Advantages Of Bridging Loan Providers Over Traditional Lenders:
LTV or Loan To Value Ratio is the one that tells about the maximum amount that one can borrow against a home’s value. When compared with traditional lenders, it has been seen that bridging loan companies offer large loan amounts against lower LTV ratios. This makes them very popular among house buyers because they get the leverage to borrow more amounts of money. Even while using their existing property as collateral for these new borrowings. Other than this, bridging loan companies also offer their customers faster and more accessible services when applying and approving loans.
Key Disadvantages Of Bridging Loan Providers:
Despite all these benefits, there are certain limitations that you should always keep in mind. When applying for bridging loans through such financial institutions.
One crucial factor that makes bridging loan providers different from other types of lenders is higher rates of interest. It is payable by borrowers on every £100 if they use bridging loans on a long term basis. Because there are very high chances that borrowers may not get time to sell the existing property even within a few years or so after applying for their new bridging loans. There have been cases where borrowers could not sell their older houses even after one or two years. This kind of situation forces them to pay high-interest rates on borrowed money. Because banks and other lending companies charge more interest when borrowers’ loan remains unpaid for a more extended period.
Bridging loan providers are different from traditional lenders. Because they do not offer any protection against borrowers who are under financial pressures due to their current debt position. If you are still carrying old mortgages or loans, it will be tough for you to borrow funds through bridging loans. Because these providers do not allow customers with non-performing credits, including CCJs, IVAS etc.
Instead of offering loan amounts directly to the customers at the time of application, most bridging loans provide bridging loan agreements or contracts that are more like short-term loan instruments. These documents carry terms and conditions which one has to follow while using bridging loans. Borrowers need to look into all the clauses of the agreement before signing them. Because if they miss any clause, then there are possibilities that they will get hauled up in legal cases at the time of repayment of borrowed funds.
Customers who use bridging loans regularly should be kept in mind that these providers do not offer the chance to get exceptional interest rates compared with other types of traditional lenders. They charge comparatively higher than buying to let loans but comparatively lower than unsecured personal debt reliefs or credit cards. However, this fact alone should not be a big issue for borrowers. Because if they compare these loans with other types of debt reliefs. It would be apparent to them that bridging loan companies offer much more significant loan amounts than most lenders.
Another limitation associated with bridging loans is that one cannot use or apply for bridging loans again and again after applying for the first time. These providers will ask you to repay all your previous borrowings and interest amounts before offering new bridging loan contracts. In addition to this, these companies do not offer any additional facilities or rewards regularly unless you become their preferred client. Through which they encourage customers to take repeat business from them.