What is a bridging loan?
If temporary financial bottlenecks have to be financed, this can be realized with the help of a bridging loan. Another name for the bridging loan is therefore the interim loan or interim financing. For example, if you purchase a property or a building plot, but your building savings contract cannot yet be paid out, then a bridging loan can be applied for for the period until payment. In principle, such interim financing is also possible for other assets.
You have concluded a building savings contract, which you will only be able to access in a quarter of a year. Then bridge loans california can allow you 3 months in advance to start construction work or pay the deposit on a purchase object. A bridging loan is the right solution in this case, because you have a corresponding security with your equity (here: the building savings contract) with which you can replace the interim loan in the short to medium term. Incidentally, unlike other types of financing, no prepayment compensation is levied for this.
Bridging loans are often used for this
- Building savings sum not yet available
You have found a cheap property and do not want to miss the offer? If your construction contract cannot yet be assigned, a bridging loan is suitable. You will receive interim financing for the building savings sum and have to pay the interest during the term. As soon as the building savings contract takes effect, it repays the previously paid savings sum. You then repay the building savings loan as planned by means of a constant installment over the contractual term.
- Life insurance not yet paid out
You have urgent financing needs, but your life insurance will only be paid out in some time? Even in such a case, a bridging loan can be useful. The interim financing can then be repaid later by disbursing the life insurance. Thus, the purchase of a house or apartment is made possible, although the existing equity capital cannot yet be accessed at the time of purchase.
- Selling a property
Do you own a property that you want to sell in order to use the proceeds as equity for the purchase of a new property? If the sale has not yet been completed, but you already want to finance the new property, a bridging loan is required. After the house sale has been completed, simply repay the interim financing with the payment from the final building loan.
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Disadvantages of the bridging loan
No matter what you need a bridging loan for, what sounds like an easy option at first glance also costs money. This is particularly felt by private households. They incur high costs with the fast financial injection, which are often disproportionate to the (usually comparatively low) loan amounts. In principle, the costs always depend on the respective lender – but with a bridging loan, interest and fees are generally significantly higher than with many other types of credit. In addition, bridging loans are often only granted at variable interest rates. The interest rate is flexibly based on the market situation.
Is a bridging loan for the self-employed worthwhile?
A loan to ensure liquidity in the short term sounds attractive, especially for the self-employed. But it is often difficult for them to assess how their financial situation will develop in the future, which is why the bridging loan for the self-employed is usually not a good choice. Especially since the required amounts are often not high enough for you to justify the expensive conditions of a bridging loan and compensate for the costs incurred. Instead, more favorable forms of loan are suitable for the self-employed in order to bridge short-term financial bottlenecks. For example, the microcredit – sometimes also called mini loan. This includes sums of a few hundred to a few thousand euros and is therefore often granted despite fluctuating revenues.