Bridging Loans Explained
As the name suggested this type of loan is a “bridge” to allow you to get somewhere within a short period of time. This time gap “bridge” is between the need to spend money and the time when money will be received.
These types of loans are rarely given by the major banks and are normally offered by second tier lenders as the loans are short term.
A common example is when a client has already sold their property. The settlement date is in 60 days, but then the client purchases another property with a settlement date in 30 days. This would mean the client would need a “bridging” loan for a period of 30 days.
It permits the client to purchase a new property before the existing property has settled.
Gives the freedom to the client to negotiate on a new property before their existing property has settled.
A "bridging" loan normally only takes about 5 days to get approved.
Can be difficult to budge when the “bridging” loan needs a full settlement.
As it’s a quick short-term loan, the interest rate is high.
If something goes wrong with the clients settlement on their existing property, it may force them to be pressured into selling at a lower price to be able to meet the commitments.