Bridging Loan

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A bridging loan is a specialised loan. Usually a bridging loan is used to cover shortfalls between buying one property and selling another, or to cover businesses between funding tranches.

A bridging loan is a specialised type of loan taken out over a very short period of time. You will know already that a standard loan gives you the money now, and schedules repayments over a fixed term. The cost of the loan is quoted as an APR, the interest you'll pay across a year. A bridging loan is used in specific circumstances to cover a shortfall over a very short period of time. The best example is the process of moving house, where you wish to complete the contract on your new property before the money in your old property is freed up. This can be a huge sum but the term across which the bridge is required might be very short.

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In all these instances, your bank or building society can provide you with a bridging loan to cover the large amounts of debt you will incur for a very short time. In all instances, the bridging loan is born of desperation, and your lender will know you're anxious and in a hurry. You can therefore expect to pay at least 2% above the lender's base lending rate. Bridging loans are usually quoted on a monthly basis rather than annually. That's not just because they're short term, but also because if you saw the APR you'd realise how much money you were losing compared to a standard loan. There is also often a management fee, although some lenders are now charging a flat rate for bridging loans. It pays to shop around.

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