Bridging the Gap Through Bridging Loans
You were on your regular walk with your wife, and you passed by this house.
Then the idea struck, you want this home.
A chat with the property dealer and the price was fixed.
But there was a problem - a major problem to be exact.
The house has to be purchased at the earliest time or else it will be sold to some other buyer.
The problem now is, how can you arrange so much money, at so short a notice.
You could sell your house, but fear you won't get a good deal, if you rush.
Worry not! You can resolve your problems through a bridging loan.
A bridging loan as the name suggests, is a loan to bridge the gap between the customer's resources and the customer's need.
So it doesn't matter what the customer earns, or what price his house will fetch on being sold.
He can take out a bridging loan to serve his immediate need.
Through a bridging loan he can have cash to pay for his new purchase, till the old home is sold.
A bridging loan is a short term loan having a repayment period of a week to six months.
Once the customer sells off his original property he can settle the bridging loan.
The bridging loan is generally secured on the customer's house / property.
The customer can decide to tie either both new and old home to the obligation, or any one home can be kept as collateral.
Once through with the property valuation, wherein the lender undertakes measurement of the worth of the house/ property, the lender can advance money to the customer within no time.
Generally two- thirds of the property can be taken as a bridging loan.
Lenders offer from $25,000 to as much as some million dollars on a bridging loan.
Who to approach for a bridging loan?
It is recommended to window shop many lenders.
Compare the rates being offered by each of them.
Not every one charges the same.
Look for any hidden cost included in the loan.
Other important criteria in your search for a bridging loan would be the speed with which the bridging loan is made available to you.
If you can not get instant cash, what is the use of a bridging loan?
Though most of the lenders make long statements about their swiftness, only a few put them into practice.
Thus bridging loan can help customers to draw instant cash.
But a bridging loan has its share of disadvantages.
Some of the disadvantages have been explained below.
A bridging loan is seen as more precarious by an average lender.
Thus they may charge exorbitantly.
Since the customer is in dire need, he accepts.
A solution to this would be to keep the repayment period short.
This way he will have to pay less.
Another disadvantage of bridging loan would be when the customer fails to sell his existing property quickly.
Till the time he sells his original home, he will have to bear the brunt of interest.
The author, James Taylor, holds a Master's degree in Commerce from JNU he is working as financial consultant.