What is a Bridge Loan: A bridge Loan is also known as 'gap financing' because as the name suggests, it is more to do with filling or ducting the empty crevices in your financial condition, especially when it is an emergency monetary need or crisis that you are facing, be it in terms of purchase of personal property or be it with respect to business issues. This loan has become very popular among the mob of real estate owners or businessmen despite the high rates of interest that come as a baggage. When in terrible need of monetary support and that too too a restriction of some weeks before you make the down payment or any other necessity, then a loan is the only option because this loan can be available in a shorter period of time comparatively with a minimal number of submission of documents for verification and rechecking before the loan is granted. It is a short-term interim loan as it only lasts up to as long as one year only.
Real life examples where loans can help: Let us take a hypothetical case where you are looking for a new apartment or a two-storied house depending upon your needs, requirements and inevitable requisite. The difficulty is that you need to sell your present home in order to buy the new one and your broker has given up and you alone are unable to find the right buyer. Here in this situation where you are facing time constriction for advance payment and are in dire need of that amount, the bridge loan becomes very useful in spite of exorbitant interest rates. Unless and until you come up with a permanent solution to pay the mortgage as well as make the advance payment for a better deal in the housing complex, bridge loan, or interim financing is the only pathway you can act on with the assurance of proper execution of your plans with minimum official trouble.
Keeping the above example in mind, why it is said that taking a bridge loan is very flexible:
- The terms of the loan state that in case you are unable to sell the house within six months, then you have to pay the reimbursements of the rate of interest on the loan.
- If you are able to find a suitable buyer within the time frame of six months, then you will not have to pay back the loan with due rates of interest.
- Bridging the cleft made by the time struggle between selling and buying, this loan solves all your financial junctures.
What is the eligibility criterion for applying for the bridge loan: The lender will perform a credit check of your history with loans and anything that proves you are not worthy of the loan. You will have to pledge any collateral or real estate asset. Also, bridge loans are often offered by individual lenders and not by any bank.