A bridge loan is a short term loan that can last anywhere from two weeks to a year or two. It will provide an individual or company with immediate cash flow to allow them to meet their obligations until they can get long term financing.
A bridge loan is also known as gap financing, interim financing, short term financing, a caveat loan and sometimes, as a swing loan.
Bridge loans are only used as an interim solution until the individual or company has managed to find long term financing for their financial situation.
How will a bridge loan benefit you?
If you need financing (as a opposed to a once-off amount of cash) for something like the purchasing of a property or another, similarly large and expensive asset, and for whatever reason you cannot get the long term financing that you need to purchase it, you would benefit greatly from a bridge loan.
This is because of the following:
- A bridge or interim loan can be arranged incredibly quickly so you will not have to wait for a long period of time to receive the cash.
- There is relatively little documentation or process to go through, making the entire procedure hassle-free.
- You can get the bridge loan for as short a period as you want, so that as soon as you are able to get long term financing, you can pay off your short term loan.
What are the disadvantages of getting a bridge loan?
Unfortunately, as with any quick money, there are several disadvantages and drawbacks to getting a bridge loan.
The following include the reasons to think carefully before you decide:
- Bridge loans are usually far more expensive than long term loans and financing. This is because:
- they pose a higher risk for the financial service provider
- the interest rates are higher
- all points and fees are paid back over a much shorter period, meaning that there is less gain for the creditor
- You may be required to offer some collateral on your short term loan. Usually a property, vehicle or other asset would be used.
Where can you get a bridge loan?
There are a great many financial service providers and companies who will give you a bridge loan.
Some of these companies include:
- SA Multi Loans
- MCS Loans
- Bridge Loans South Africa
- Bridge Loans
- Direct Axis
- Loans Direct
- First National Bank
- Standard Bank
There are, of course, many more companies and financial service providers who will be able to provide you with a bridge loan. Speak to your bank about your options.
What to keep in mind when applying for a loan or any other form of credit
It is so easy in today’s fast paced, consumer driven world to get overwhelmed by debt. It is always a good idea to think very carefully before you take out a loan, get a credit card, open a store account or apply for any other type of credit.
The following tips and advice will help you to keep your head above water when it comes to debt, and will help you to avoid a bad credit score, negative listings against your name, being blacklisted, having legal action taken against you by creditors, repossession and a number of other consequences.
Do not spend above your means
Having a credit card or a loan is not a ticket to a life of luxury. You should only ever use credit to buy things that you NEED rather than simply want. If you can pay for something in cash, always do.
Stick to your side of the deal
When you open a store account or get financing for a vehicle, always make your payments in full and on time. If you are struggling with money one month, cancel your DSTV subscription, don’t go to the movies for a bit or each cheaper food so that you can pay your debt.