What Happens if I Cannot pay the Bridging Loan back on time?
A Bridging Loan is a type of short-term finance that is offered to a borrower which is secured against a property that the borrower is either buying or already owns, being short-term bridging loans are offered for up to 12 months and at the point of application you will be asked how long you would like to take the loan for, you should always take a 12 month term as there is no financial penalty for having the maximum term on your loan.
Even if you only intend to have the loan for 3 months it makes no difference to the lender who will charge you exactly the same fees if the loan period is for 3 or 12 months, this is because the interest on the loan is calculated on a daily basis and as such you are only ever charged for the time you have the loan for, furthermore taking out the loan for 12 months gives you flexibility and extra breathing space should things not go as quickly as you think which is often the case with property transactions so our advice is always to take the loan for 12 months no matter how long you actually think you need it for.
Once the term is up that you have agreed with the lender you will need to pay the loan back, however this is not always possible you could have a delayed sale or problems selling a property you own or any number of reasons that mean you are not in a position to pay the loan back, in these circumstance you should always contact the lender as soon as you become aware of your situation, discuss with them your proposals and see what the best way forward is going to be, most of the lenders we deal with are quite happy to offer an extension of 6 months on the original term agreed, however they will expect you to pay another arrangement fee of up to 2% of the loan amount for the privilege of this extension, if after this 6 months you are still not in a position to pay the loan back you will have no other choice but to re-bridge the loan with another bridging loan lender, only in exceptional circumstances would a lender agree to any more extensions after the first one.
Which means a re-bridge of the debt to pay back the original lender, if this is going to happen you should contact your broker leaving ample time to get the re-bridge in place before you go over the term agreed with the first lender if you do this they will almost certainly put you in default, you do not want this to happen as they will not only hit you with another set of fees to pay but also put additional interest rate charges onto the loan until it is paid back.
You should always remember that a bridging loan is a short-term product and will have to be paid back in the agreed loan term, once you get into re-bridging and going over the agreed loan term things can get very expensive so before taking on the loan you should be totally comfortable that you can get the funds to clear the loan within the loan period agreed, either by selling the property at a realistic price, to make sure of this ask your local agent for a valuation and then also for a valuation if you needed to sell the property in 90 days, this is a method all lenders use to get a realistic price that the property will achieve should you need to sell quickly, likewise if the funds are coming in from another source, you should take a realistic view on when and how they are coming in, also if this is the case a lender will usually want proof of where and when these funds are coming in to enable you to redeem the loan.
What if I pay back the Bridging Loan early?
When you take out a bridging loan or finance a term is agreed with the lender usually 12 months from the date that you draw down the loan, obviously the intention is to pay back the loan as quickly as possible, so often you are in a position to repay the loan early either because you have sold the property or have come into funds from another source, the good thing with bridging loans unlike mortgages that sometimes have early repayment charges, bridging loans do not, this means that you just pay the loan off and that is it, with regards to the interest you are charged this will only be for the actual days that you had the loan and this is calculated on a daily basis, although some lenders will have a minimum of three months interest charge, the fact is most bridging loans go over this period anyway as even if you sell your property quickly there are legal's to do and these all take time.
UK Bridging Loans are one of the UK’S leading bridging loan brokers and can search all of the loans on the market to source the perfect deal for your circumstances.
Contact us now to discuss your proposal and we can assure you of the very best advice and service, call us now 0800 138 6001 or use the contact form on this page to compare loans.
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