Does Bridging Loans Impact your Credit Score?

bridging loans impact

A bridging loan is ideal if you need to finance a commercial purchase within the shortest possible time. It is ideal for commercial and real estate investors looking to buy a property. You need immediate finance to clock the property you won at auction. However, arranging money in the shortest span of time is sometimes challenging.

Here, bridging loans help you pay the remaining dues the same day and claim the property you won at auction.

However, analyse the terms and have a proper exit strategy. It is a long-term financial solution. That’s why we often require borrowers to ensure regular payments and have a clear plan to pay back the money. Else, you may lose the property you borrow it against. It may impact your credit score. Moreover, breaching the agreement may invite legal implications and court judgments.

How your credit rating be affected by a bridging loan?

These loan types help you bridge the gap between debit and credit payments for time-sensitive purchases. The loan help renovate the commercial or residential properties to sell them further. It helps the property owners to sell one property or finance renovation without waiting until the other property sells.

The loan providers conduct detailed financial checks to ensure whether you can pay the loan timely or not. The detailed checks may impact your credit score at the time of loan application.

However, avoid applying for too many applications. Every lender may see it while credit screening, impacting your credit score.

Rolling over repayments or missing a few payments may impact the interest rate on the loan. It may impact the credit score, then. The reason is when you miss a payment, along with interest, the other penalty costs make the loan costly. It shifts the credit score.

If you miss repayments in a row, you may soon end up defaulting on the loan.

Alternatively, if you quickly track payments and resume regular payments on the loan until the term, you can save it. Improvise your finances and plan out repayments before the due date. If you quickly take control and pay consistently towards the loan, your credit score improves.

It is important to weigh down the pros and cons of the bridging loan before applying. Though bridging loans help buy a property without any financial troubles, it has some cons.

One of the cons is the outstanding administrative costs and fees that may impact the credit score.

How to avoid defaulting on bridging loans and save your credit score?

To begin with, partner with a direct lender who analyses your situation and helps fetch easy bridging loans.  We analyse the payment potential, the exit strategy, the credit score, and the purpose in detail before deciding. As a result of the detailed and responsible analysis, we do not accept every application. We ensure the borrowers know the terms, conditions, and repercussions before applying. You can contact us for any big and small details regarding the loan. We are happy to help. Here are other ways you can avoid defaulting on the loan:

1)     Seek agreement in principle

Agreement in principle is the document that the lender provides to a borrower stating the amount one can borrow legally. Some real estate sellers demand the document before granting permission to review the property. It does not affect the sale. The document does not guarantee the fact that you will get the loan. A minor change in finances may still impact the loan approval.

2)     Ensure a strong exit strategy

An exit strategy is a vision or a plan to pay the bridging loan within the decided time frame. It is the key deciding factor when seeking a bridging loan. We mandate one have a clear exit strategy, Including realistic project numbers and revenue bars. 

Thus, borrow it for a long-time if you cannot decipher the exact sales number. Apart from the sales, have a clear idea reading the property on sale. 

By when do you plan or visualise selling the property?  Consider the liquidity market and other investments per the economy and decide the right term to exit the loan by paying in full.  Count in the risks of the buyers opting out of the interest in buying property.

You can rely on the below aspects to pay the loan without defaulting–.

  • Property sale
  • Refinance to a longer-term mortgage
  • Bank over investments
  • Sale of secondary property
  • Inheritance
  • Selling shares

3)     Stay active with the ongoing development to avoid red flags

You should review the development frequently after investing the loan amount in property renovation. Property renovation and selling it is time-consuming. 

Thus, be on the mark with any red flags or misconstruction that may impact the sale. In this case, the lenders may either demand a charge on the property to review the changes. 

Alternatively, if the development goes smoothly, the lender will not intervene. 

4)     Reach out to the loan provider in case of non-payment

Business owners cannot guarantee constant profits and sales due to a volatile business environment. It is an unfortunate event that may impact the repayment course. When this happens, you may soon lose the financial track and default. Call up the loan provider and discuss the financial situation.

Explain the genuine reason behind the non-repayment or missed payments.  You do not need to walk out of the loan agreement in haste. It may impact your financials and credit score significantly. If you contact loan providers like us early, you can find a suitable loan solution. We may help you protect the collateralised asset with personalised financial analysis and solutions.

It is better than ghosting your lender or putting calls on hold. Arriving at an amicable solution may help you clear your debt and save your credit score.

5)     Choose the right interest type to pay on bridging loans

Some bridging loan providers grant borrowers the flexibility to pay interest costs monthly. While you may spot some lenders are offering retained interest rates. Here the lender includes the maximum interest to pay in the agreement. If you repay the amount in full, you get a refund on the interest you did not use.

You can also consider rolled interest rates. Here, you can defer the interest until the loan term. Here the borrower pays the amount along with the lump sum. This facility allows one to release money and use it in the development process.

Thus, you can relish these facilities when you partner with us for bridging finance. We release the money within 2 days as a part of the fast-bridging loans process. Moreover, only essential documents and credit screening make the application swift and hassle-free.

Bottom line

There are ample ways to save your credit score and pay the bridging loan comfortably. It depends on the amount you choose to load up and exit strategy. You can retain the credit score once you have the documents, strategy, and good capital backing to clear the loan.

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