Bridge loans are the temporary funds for the down payment or investment that act as short-term support. The interest rates are higher than the other alternatives because of the shorter term and higher risk. Still, certain situations make it the only viable option for the borrowers.
Majority of the borrowers of bridge loans are the new house owners in search of money for a down payment. They are stuck in between the timeline where the money from the previous property may take some time to arrive. The other users are corporate entities aware of their future earnings for the repayment.
Here, we have mentioned some pros and cons of the bridge loans to help you decide on its application –
Fast Fund Disbursement
Bridge loans provide financial support to the people in urgent need of cash. The lenders will provide you with the fund within a few weeks. The fast disbursement time ensures the deal is closed within the time frame.
The homeowners can use the money to get the house they want without the risk of losing the deal. The seller may not wait for the sale of your house as there are other buyers in the market as well. For businesses, wait for the fund can cause serious damage and monetary losses.
The heavy risk and shorter terms are the reasons lenders may offer higher interest rates. Even the perfect credit history helps the borrowers to get favourable terms during the negotiations. The interest rates will increase the monthly instalments causing financial troubles during the repayment.
Some other options in the market offer short term loan at comparatively lower interest rates. You can apply for doorstep loans in Ireland to get the money delivered to your home. However, these loans are not recommended for a big loan amount.
Flexibility while Purchasing
Many house owners are trap under the overlapping of buying a new property and selling the current one. It gets overwhelming for the house owners to simultaneously complete both the task. You may lose thousands of pounds if any of the deal is made wrong.
A bridge loan provides the peace of mind to shift the focus on one activity at a time. Now, you have the financial support to buy a new house without selling the old one. You have the option to wait for the best offer on the current house.
Lenders will ask for some collateral to approve your application for a bridge loan. Therefore, there is a risk of losing one of the assets if the deal turns out to be a disaster. There is no option for default as the consequences are not worth it.
Many lenders offer a few months to the borrowers for managing their finances. You can use the time to sell your house and repay the loan. If not, the instalments can be stressful since an asset is already on the line.
Best Deals are not Missed
Real estate is a market where great deals are rare and temporary. The sellers will find another buyer in a few days if you are waiting for the funds. A bridge loan helps you grab the opportunity without much of a delay.
You cannot risk the perfect house discovered in your favourite neighbourhood to get sold. Use the financial help from a bridge loan and close the deal before someone else does it. You may get returns higher than the interest paid for the loan.
Regular Income Required
The eligibility for a bridge loan is quite stringent compared to the other loans. The borrower needs to have a near-perfect credit rating to apply for the loan. Any default in the past will leave your application in the reject list.
Also, a regular income is required to display affordability for the loan. The lenders will assess the financial affordability of the loan based on your paycheque. Therefore, there are very limited people eligible for a bridge loan.
Increased Stress on Finances
A bridge loan is another liability that will take monthly instalments in addition to your house mortgage. You know have to manage two instalments with your limited income. Therefore, the stress on your budget may get unmanageable if the money is not raised to repay the loan.
It is recommended to perform comprehensive research for the lenders to get reasonable interest rates. Even a slight difference can make a significant impact on the monthly instalments. Focus on the affordable cost more than the lower overall cost of the loan.
To sum up, bridge loans are ideal if you are assured of the coming finances to repay the loan. The added stress of instalments can damage your finances beyond repair. However, it could be the only option left if the deal on house is too good to miss.