Choosing the right type of finance can make or break a property deal or personal project, especially when time is tight. Bridging loans, personal loans and remortgaging all offer access to funds, but they work in very different ways, with different costs, speeds and eligibility requirements attached.
Whether you’re covering a gap in a property chain, funding a renovation, or consolidating costs, choosing the wrong option can cost you valuable time and money.
At Bridging Finance Solutions, we’ve helped countless individuals get the finance they need for their personal projects, and we have seen firsthand the impact our loans have had on the quick completion of these projects. Keep reading to find out which financing option is right for you.
What is a Bridging Loan?
A bridging loan is a short-term loan designed to ‘bridge the gap’ between the purchase of a new property and the receipt of funds. Usually repaid within 12 months, bridging loans are a temporary solution that allows the smooth completion of a property purchase, sale, development, or refurbishment.
How Bridging Loans Work
Bridging loans are often the first charge on the property that you’re either purchasing, developing or refurbishing and are paid off with an exit strategy that is established before the terms of the loans are agreed. Our step-by-step guide to how bridging loans work breaks this process down in more detail.
Common Uses of Bridging Loans
Some of the common uses of bridging loans include:
- Property chain breaks
- Auction purchases
- Buying before selling
- Uninhabitable property purchases
- Refurbishment and property flipping
- Commercial and business use
What is a Personal Loan?
A personal loan is a loan taken out from an independent lender and is often repaid in fixed monthly repayments, with interest added. Personal loans are often unsecured, which means that no assets are put up as collateral, but this can mean bigger financial consequences if you do not repay the loan as agreed in the terms of the loan.
For personal loans, you can often expect a stricter limit on the amount you can borrow, which means that if you need a greater amount, you may need to source several loans.
Bridging Finance Vs Remortgage: What is Remortgaging?
Remortgaging is moving your mortgage to a new lender while maintaining the same property. There are many reasons why someone may choose to remortgage their property, from paying off their mortgage more quickly to securing more favourable interest rates.
How Remortgaging Works
When you remortgage, you either take out a new loan with your existing lender or with a new provider. When you remortgage, you pay off your old mortgage with the money from the new one and enter into a new repayment agreement.
When a Homeowner Typically Remortgages
The main reason a homeowner chooses to remortgage is to secure a lower interest rate when their initial deal expires, avoiding expensive standard variable rates. It is also commonly used to secure funds for home improvements, consolidate high-interest debts, or modify the mortgage term to pay off the property more quickly.
Bridging Loan Alternatives: Key Differences at a Glance
Not sure which financing option suits your individual needs? Some of the key differences between the three loan types include:
Speed of Access to Funds
The speed at which you can access funds is vastly different between the three financing options.
Bridging Loans
The speed at which you can receive a bridging loan really depends on the project at hand, the information you’ve provided, and the lender you have chosen. You can often receive a bridging loan within a couple of days to a couple of weeks, making it a fantastic solution for time-sensitive projects.
At Bridging Finance Solutions, we have provided a bridging loan for a fast property purchase within as little as 48 hours, and when you work with an expert lender like BFS, you can rest assured that you will get the finance you need quickly.
Personal Loans
Personal loans also provide a fast solution, with some providers able to provide finance on the same day for smaller amounts. This is the closest comparison when looking at bridging vs personal loans, as these two loan types can be given in a quick time frame.
Remortgaging
Remortgaging a property has the slowest timeline of the three financing options. It can take 4-8 weeks for a remortgage to be completed due to valuations, legal checks and lender processing.
Interest Rates and Overall Cost
Another big difference between the three financing options is the interest rates and the overall cost of the loans. It is important to remember that the terms of these loans usually differ substantially, so while some may have higher interest rates, that may come with a shorter term.
Bridging Loans
The interest rate of bridging loans can depend on whether you would like to repay your loan monthly or roll up the interest to be repaid at the end of the loan. Bridging loans tend to have higher monthly interest rates, but this is calculated over a shorter term, so the total cost of your loan depends on how fast you repay the loan.
Personal Loans
Personal loans have fixed interest rates that tend to be lower than those of most loans, but this is also due to the stricter limitations on how much you can borrow. These fixed interest rates can also be repaid over a longer period, making them feel more manageable, but they can be inconvenient if you don’t want a long-term repayment commitment.
Remortgaging
Typically the lowest of the three interest rates, particularly when replacing a higher standard variable rate, but it might also involve arrangement fees and early repayment charges on the current deal. However, it is important to remember that remortgaging is only appropriate in very specific cases.
Loan Amounts Available
Bridging loans, personal loans and remortgaging also differ significantly in how much you can actually borrow, largely because each is assessed against different criteria. Some options are based on property value, while others depend more on your income and credit profile, so the amount available to you can vary considerably depending on which route you take.
Bridging Loans
Bridging loans can range from tens of thousands of pounds up to several million, as the amount is largely determined by the value of the property being used as security rather than your income. This makes them a flexible option for larger or more complex funding needs, provided you have sufficient equity or an asset to back the loan.
Personal Loans
Personal loans tend to come with much lower borrowing limits, usually up to around £25,000 to £50,000, depending on the lender and your credit history. This makes them better suited to smaller funding needs, rather than substantial property-related costs.
Remortgaging
The amount you can borrow through remortgaging depends on how much equity you have built up in your property. This can unlock a significant sum, making it a suitable option for larger projects, but only if you have sufficient equity to justify the cost.
Security/Collateral Required
The level of security or collateral required for each option also varies, and this can affect both how quickly you’re approved and what you stand to risk if repayments aren’t kept up.
Bridging Loans
Bridging loans are secured against property, which often allows for faster approval since the loan is based on the asset rather than your income. However, this also means the property is at risk if the loan isn’t repaid as agreed.
Personal Loans
Personal loans are usually unsecured, meaning there’s no property risk attached to borrowing. That said, approval relies much more heavily on your credit score and affordability, so this isn’t necessarily the easiest option for everyone.
Remortgaging
As with bridging loans, remortgaging is secured against your home, so missed repayments carry the risk of repossession. This is an important factor to weigh up before deciding if remortgaging is the right choice for your circumstances.
What Options Suit Which Situations?
Unsure as to which loan type suits your current situation? Here are some examples of when each loan can and should be used.
When a Bridging Loan Makes Sense
There are many situations in which bridging loans are the best solution. For example, if you need to complete a purchase quickly, such as at auction, where the full funds are required within 28 days. Our guide to buying property at auction explains what to have in place before you bid.
If you’re stuck in a broken property chain and need quick finance to help you bridge the gap between the sale of a property and the purchase of another, bridging loans can also be incredibly valuable.
Bridging loans are ideal for individuals who have an exit strategy in place but don’t have the finance they need to get there. That’s where providers such as ourselves can be helpful, helping you complete your purchase, development or refurbishment, even when you don’t have the initial funds to do so.
When a Personal Loan Makes Sense
Personal loans are perfect for when you don’t need a large sum of money, but you need it fast. If you’re someone who doesn’t have personal assets that can be used as collateral, personal loans are a good solution as they’re based on your personal financial history, but if you have a poor credit score, that means that you almost certainly won’t receive financing.
This is where bridging finance is different: bridging loan lenders don’t look at your credit history; they look at the project at hand, your team, and your experience, meaning their decision isn’t dictated by past financial mistakes.
When Remortgaging Makes Sense
Remortgaging works well when you’re not in a rush and have built up enough equity in your property to make it worthwhile. If your current fixed-rate deal is coming to an end and you want to avoid slipping onto a higher standard variable rate, remortgaging can be a sensible way to keep your repayments manageable.
The key difference here is speed. If you need funds urgently or your current lender won’t offer the terms you need, remortgaging simply won’t move fast enough. That’s often when bridging finance is the better fit, providing the funds you need now, with the option to remortgage further down the line once your circumstances allow.
Get a Bridging Loan With Bridging Finance Solutions
Through this guide, you should now have a better understanding of what funding solutions are available to you when it comes to securing a new property, completing a development or getting the funds you need for a refurbishment. If you still have questions, our FAQs page covers the details most borrowers ask about.
If you want fast, secure and short-term finance, a bridging loan is the obvious choice.
At Bridging Finance Solutions, we are committed to providing fast finance solutions.
Get in touch to find out how we can help make it happen.
