Bad Credit Bridging Loans
Are you struggling to secure traditional financing due to a less-than-perfect credit history?
Bad credit bridging loans might be the solution you’ve been searching for.
These short-term financing options can help you overcome financial hurdles, even when your credit score isn’t at its best. Let’s explore how these loans work and how they could benefit you.
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Bridging Loans
Introduction to Bad Credit Bridging Loans
Bad credit bridging loans are short-term, secured loans designed for individuals and businesses with poor credit histories.
These loans “bridge” the funding gap between an immediate financial need and a future source of funds.
Unlike traditional lenders, bridging loan providers focus more on the value of your assets and your exit strategy rather than solely on your credit score.
Key features of bad credit bridging loans include quick approval processes, flexible terms, and the ability to borrow against property or other valuable assets.
These loans typically last from a few months to 24 months, providing a rapid financial solution when time is of the essence.
What is a Bad Credit Bridging Loan?
A bad credit bridging loan is a specialised form of short-term finance tailored for borrowers with poor credit histories.
These loans are secured against property and are designed to provide quick access to funds when traditional lending options are unavailable due to credit issues.
Unlike conventional loans, bad credit bridging loans prioritise the value of your security and the viability of your repayment plan over your credit score. This approach makes them an attractive option for those who have been turned down by mainstream lenders due to past financial difficulties.
Types of Bad Credit Bridging Loans
Bad credit bridging loans come in various forms to suit different financial situations:
Open bridging loans
Open bridging loans offer more flexibility with no fixed repayment date, but often come with higher interest rates. These are ideal when your exit strategy’s timing is uncertain, such as waiting for a property to sell.
Closed bridging loans
Closed bridging loans have a fixed repayment date, usually tied to a specific event like the completion of a property sale. These loans often have lower interest rates due to the reduced risk for lenders.
First charge loans
First charge loans are the primary loan secured against a property. If you own your property outright or have a small mortgage, this might be your best option. They typically offer better rates as they’re less risky for lenders.
Second charge loans
Second charge loans are additional loans secured behind an existing mortgage. These can be useful if you’ve built up significant equity in your property but still have an outstanding mortgage.
Credit Issues Considered by Lenders
While bridging loans are more accessible than traditional financing for those with poor credit, lenders still consider your credit history. However, they take a more holistic approach, looking at the overall picture rather than just your credit score.
Lenders may consider applications from individuals with various credit issues, including:
- County Court Judgments (CCJs)
- Defaults on previous loans
- Missed or late payments
- Individual Voluntary Arrangements (IVAs)
- Bankruptcy (usually discharged)
- Debt Management Plans
The severity and recency of these credit problems play a role in the lender’s decision.
For example, a CCJ from several years ago may have less impact than a recent default. Lenders are often more concerned with your current financial situation and ability to repay the loan than past mistakes.
Additionally, there is the option of a non-status bridging loan, where the LTV is restricted to 70% but the lender does not require a credit search.
Other Factors Lenders Consider
While credit history is a factor, bad credit bridging loan lenders place more emphasis on other aspects of your application:
Exit strategy
This is perhaps the most crucial element. Lenders want to see a clear, viable plan for repaying the loan. Common exit strategies include selling a property, refinancing to a traditional mortgage, or using funds from a business sale.
Security and collateral
The property or asset you’re using to secure the loan is a key consideration. Lenders will assess its value and marketability to ensure it provides adequate security for the loan.
Loan-to-value (LTV) ratio
This is the amount you’re borrowing compared to the value of the security. Bridging loans typically offer LTVs up to 70-75%, though this can vary based on your circumstances and the lender’s policies.
By focusing on these factors, lenders can offer financing solutions to borrowers who might otherwise struggle to access funds due to their credit history.
Don’t let bad credit spoil your plans.
Benefits of Bad Credit Bridging Loans
Bad credit bridging loans offer several advantages, particularly for those who have been turned down by traditional lenders:
Quick access to funds
One of the primary benefits of all bridging loans is their speed. While a traditional mortgage might take months to arrange, a bridging loan can often be approved and funded within a matter of days or weeks. This rapid access to finance can be crucial in time-sensitive situations, such as property auctions or preventing repossession.
Read more: How Quickly Can You Get a Bridging Loan?
Flexibility in loan use
Bridging loans can be used for a wide variety of purposes. Whether you’re looking to purchase a property, fund renovations, or inject capital into your business, a bridging loan can provide the necessary funds. This flexibility makes them a versatile financial tool for both individuals and businesses.
Read more: What can a bridging loan be used for?
Potential to improve credit score
Successfully obtaining and repaying a bridging loan can have a positive impact on your credit score. By demonstrating your ability to manage and repay a loan, you may improve your chances of accessing more traditional forms of finance in the future.
Overcoming traditional lending barriers
Perhaps the most significant benefit is the ability to access finance when other doors are closed. If you’ve been refused a mortgage or personal loan due to poor credit, a bridging loan could provide the funds you need to move forward with your plans.
While these benefits make bad credit bridging loans an attractive option, it’s important to remember that they come with higher interest rates and fees compared to traditional loans. Always carefully consider whether the benefits outweigh the costs in your specific situation.
Common Uses for Bad Credit Bridging Loans
These short-term loans offer quick access to funds, making them ideal for time-sensitive opportunities or pressing financial needs.
From property purchases and renovations to business funding and preventing repossession, bad credit bridging loans can be adapted to a wide range of financial requirements.
Let’s explore some of the most common ways these loans can be put to use, demonstrating their potential to overcome financial barriers and create new opportunities.
Property purchases, including auctions
Bridging loans are often used to buy properties at auction, where you typically need to complete the purchase within 28 days. They’re also useful for breaking property chains, allowing you to purchase a new property before selling your existing one.
Renovations and refurbishments
If you’re looking to improve a property before selling it or refinancing with a traditional mortgage, a bridging loan can provide the necessary funds. This is particularly useful for properties that are currently unmortgageable due to their condition.
Business funding
Entrepreneurs with poor credit can use bridging loans to seize time-sensitive business opportunities, fund expansion, cover VAT bills or manage cash flow gaps.
Preventing repossession
In some cases, a bridging loan can be used to prevent repossession, giving you time to sell your property or find alternative long-term financing.
Costs and Fees
Interest Rates
Interest rates are typically higher than those for standard bridging loans. This reflects the increased risk for lenders when dealing with borrowers who have poor credit histories.
Rates are usually quoted monthly rather than annually and can range from 0.5% to 1.5% per month, depending on your circumstances.
Factors affecting your interest rate include:
- The severity and recency of your credit issues
- The strength of your exit strategy
- The loan-to-value ratio
- The type and value of your security property
It’s important to note that while these rates may seem high compared to traditional loans, the short-term nature of bridging loans means the overall cost can still be manageable if you have a solid exit strategy.
Interest on bridging loans is typically charged in one of three ways:
- Monthly payments: You pay the interest each month.
- Rolled-up interest: The interest is added to the loan and paid at the end of the term.
- Retained interest: The total interest is calculated upfront and ‘retained’ from the loan advance.
Understanding how interest will be charged on your loan is crucial for managing your finances effectively.
Additional Fees
In addition to interest, there are several other fees to consider when taking out a bad credit bridging loan:
Arrangement fees
These are typically 1-2% of the loan amount and cover the lender’s costs for setting up the loan.
Valuation fees
You’ll need to pay for a professional valuation of your security property. The cost will depend on the property’s value and type.
Legal fees
You’ll need to pay for both your own solicitor and the lender’s legal costs. These can vary depending on the complexity of your case.
Exit fees
Some lenders charge a fee when you repay the loan. This is typically a percentage of the loan amount.
When considering a bad credit bridging loan, it’s crucial to factor in all these costs to understand the total expense of the loan. Always ask for a full breakdown of fees before proceeding with an application.
Repayment Options and Exit Strategies
Your exit strategy – how you plan to repay the loan – is an essential part of your bad credit bridging loan application.
The key is to have a clear, realistic plan for repayment. Lenders will scrutinise your exit strategy closely, especially if you have bad credit.
Here are some common exit strategies:
Property sale
This is one of the most straightforward exit strategies. You borrow against a property, then sell it to repay the loan. This works well for property developers or those looking to downsize.
Refinancing
If you’re using the bridging loan to purchase or renovate a property, you might plan to refinance to a standard mortgage once the work is complete or your credit situation improves.
Alternative funding
This could include the sale of other assets, an inheritance, or funds from a business sale. Whatever the source, you’ll need to provide evidence that the funds will be available when needed.
Importance of a Viable Exit Strategy
Your plan to repay the lender significantly influences whether your loan application is approved. Lenders need to be confident that you can repay the loan, especially given your poor credit history.
A solid, low-risk exit strategy might help you secure better loan terms, potentially including lower interest rates or higher loan-to-value ratios.
Without a viable exit strategy, you risk being unable to repay the loan when it’s due. This could lead to additional charges, damage to your credit score, or even the loss of your security property.
When planning your exit strategy, be realistic and consider potential obstacles. For example, if you’re relying on selling a property, research the local market thoroughly and allow for the possibility of delays or price fluctuations.
How to Improve Your Chances of Approval
If you’re considering applying for a bad credit bridging loan, there are several steps you can take to enhance your chances of approval:
Providing a larger deposit
Offering a substantial deposit reduces the loan-to-value ratio, making the loan less risky for the lender. This can increase your chances of approval and potentially secure better terms.
Read more: Do You Need a Deposit for a Bridging Loan?
Offering additional security
If possible, consider offering additional assets as security. This could be other properties you own or high-value items like vehicles or jewellery. The more security you can provide, the more comfortable lenders may feel about offering you a loan.
Explaining past credit issues
Be upfront about your credit problems. Explain what led to them and, importantly, what steps you’ve taken to improve your financial situation since then. Lenders appreciate honesty and evidence of financial responsibility.
Improving your current financial situation
While you can’t change your credit history overnight, you can demonstrate current financial stability. This might include maintaining regular employment, keeping up with current credit commitments, and avoiding new credit applications in the months before you apply for a bridging loan.
Apply with someone else
If someone else can also be part of the loan then you could apply for a joint bridging loan. This may give the lender a bit more confidence, reduces their risk and maybe you can negotiate a slightly better deal.
Working with a specialist broker
A specialist broker experienced in bad credit bridging loans can be invaluable. They understand which lenders are more likely to accept your application and can help you present your case in the best possible light.
Remember, while these steps can improve your chances, approval is never guaranteed. Always be prepared for the possibility of rejection and have alternative plans in place.
Specialist Finance Brokers
Working with a broker specialising in bad credit bridging loans will significantly improve your chances of securing the right loan, on the right terms.
Here’s how brokers can help:
Market knowledge
Brokers have in-depth knowledge of the bridging loan market and relationships with a wide range of lenders, including specialist bad credit lenders. They can quickly identify which lenders are most likely to approve your application.
Application support
Experienced brokers understand what lenders are looking for in a bad credit application. They can help you present your case in the best possible light, potentially improving your chances of approval.
Access to exclusive deals
Many lenders offer special rates or terms that are only available through brokers. This means you might be able to access better deals than you could find on your own.
Time saving
Applying for loans, especially with bad credit, can be time-consuming and stressful. A broker can handle much of the legwork, saving you time and reducing the stress of the application process.
Tailored advice
A good broker will take the time to understand your specific situation and needs. They can provide personalised advice on which type of loan and which lender might be best suited to your circumstances.
Bad credit bridging loans can be a valuable financial option for those who have been turned down by traditional lenders due to poor credit history.
They offer a way to access funds quickly, whether for property purchases, business opportunities, or to prevent repossession.
However, these loans come with higher costs and risks compared to traditional financing options. It’s important to have a solid exit strategy in place and to fully understand all the terms and costs involved before proceeding.
While bad credit can make borrowing more challenging, it doesn’t have to be a complete barrier.
With the right approach, a strong exit strategy, and often the help of a specialist broker, many people with poor credit histories can successfully secure bridging loans.
Just give us a call on 0330 030 5050 to get matched with an expert.
