By definition, a bridging loan is a type of secured loan in its own right. Hence, there are several similarities shared by these two financial products. Nevertheless, there are also distinct differences that must be taken into account.
The intended application for the funds and your financial circumstances at the time typically determine which of the two is the better option.
Taking a look at secured loans first, this is essentially an umbrella term that encompasses all financial products secured on the borrower’s assets. From mortgages to car loans to secured business loans and specialist development finance, all such loans fall under the header of secured loans.
Across the board, conventional secured loans are almost always secured exclusively on the borrower’s property. In the case of mortgages and secured loans for property purchases, the borrower’s home may be the only acceptable asset to secure the loan. Other assets and personal property are not accepted to cover the cost of the loan.
Pros and Cons
For borrowers with a strong credit history and sufficient collateral to cover the loan, secured loans can be accessible, affordable and convenient. It may also be possible to borrow a potentially limitless amount, in accordance with the value of the property used to secure the loan. The stronger the financial position of the borrower, the more competitive the rates of interest and overall borrowing costs. It’s also possible to repay a secured loan over a period of several years – even decades – to maximise affordability for the borrower.
On the downside, traditional secured loans are often only available to borrowers with a strong credit report and proof of their current financial status. Even with sufficient collateral to cover the cost of the loan and the deposit as required by the lender, it can be difficult to qualify with a poor credit history. In addition, traditional secured loans and mortgages can be difficult and time-consuming to organise. Some lenders also place heavy restrictions on how the funds provided can be used.
If considering a secured loan for any purpose, be sure to use an online secured loans calculator first for an idea of what’s on offer.
In the case of bridging loans, bridging finance is ideal for covering short-term financial gaps with fast-access funding. Unlike traditional secured loans, bridging loans can often be secured using a variety of assets and property types – residential properties, commercial properties, business assets, vehicles, jewellery, fine art and so on.
Pros and Cons
The most immediate benefit of bridging finance is the speed and simplicity of the transaction. Bridging loans can be organised and accessed in a matter of days, rather than weeks or even months. In addition, bridging lenders typically place no restrictions whatsoever on how the funds can be used. There may also be no requirement to undergo a credit check, or provide evidence of your income or financial position. Designed to be repaid within a matter of months, overall borrowing costs attached to bridging finance can be extremely competitive.
Perhaps the only disadvantage with bridging finance is the requirement to repay the loan in one lump-sum payment after 6 to 18 months. Ideal for borrowers looking to bridge temporary financial gaps, though unsuitable for those who need to stagger the loan’s repayment over a longer period.
Once again, it’s advisable to use an online bridging loans calculator to see how bridging finance works, before going ahead and submitting your application. When ready to go ahead, seek the input and support of a specialist broker or independent financial adviser at the earliest possible stage.