Need a million pounds by next week? Just put it on your credit card, pay off the monthly minimums and voilà, problem solved.
But is it? While using credit cards to access liquidity immediately is one option, it can be an expensive route. You’ll need to make the monthly minimum repayments on your card, while interest will be charged on the remaining balance until you repay the loan in full. Interest rates vary, but APRs can often exceed 20% on the outstanding balance, on top of your usual credit card fees.
The cost of borrowing can quickly add up. It can also be difficult to understand exactly how much you will ultimately pay for the privilege of borrowing money this way. Credit card charges can be complicated, and it’s easy to think you have calculated the cost correctly only to find that you need to repay considerably more than expected.
Many people use overdrafts for the same reason: to access capital quickly. Unauthorised overdrafts can be particularly expensive. Authorised overdrafts are generally less costly, but interest can still be around 20%, typically for borrowers with strong credit profiles. Fees can rise significantly if your circumstances are less straightforward, making overdrafts potentially more expensive than credit cards. Additional fees may also apply on top of the interest charged.
Access Capital Quickly Without Using Credit Cards Or Overdrafts
Borrowing through a credit card or overdraft can be exceptionally expensive compared with other forms of lending. So why do high-net-worth individuals, who are often financially sophisticated and well advised, sometimes use them? The answer is usually simple: they need immediate access to capital. In other words, time is of the essence.
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Credit cards and overdrafts can be among the fastest ways to access liquidity for a range of purposes. They may be used to solve a short-term liquidity requirement or pursue an opportunity where arranging funding through another type of loan would take too long.
Bridging loans can provide an alternative that may be more cost-effective and flexible.
Why Bridging Finance Instead Of Credit Cards Or An Overdraft?
Bridging finance differs from many other forms of borrowing in the speed with which it can be arranged. With the right support, offers can sometimes be obtained quickly, potentially within 24 hours. The parties involved in a bridging transaction are accustomed to working to tight timescales, meaning some deals can be completed within a week and funds may sometimes be drawn down in as little as seven days.
A bridging loan is secured against property you own, although this does not necessarily have to be your primary residence. It does not have to be used to purchase property or invest in real estate, although it can be. Instead, bridging finance can potentially be used to secure opportunities, finance investments or assets, grow a business, repay existing borrowing, purchase land or fund a property transaction. The potential applications are broad.
Provided your lender is comfortable with your plans, the proceeds do not necessarily have to be deployed in the same location as the property securing the loan. Depending on the lender and structure, funds can potentially be used for both domestic and international projects.
Whenever you are looking to borrow significant amounts of capital, it is important to structure the financing carefully. Bridging finance packages can be tailored to your requirements and may offer more flexible terms than borrowing through a credit card or overdraft. The overall cost and structure will depend on your circumstances, the security available and how you intend to use the funds.
Bridging Finance Interest Rates
Interest rates on bridging loans can be significantly lower than those associated with credit cards or overdrafts, although the rate you pay will vary depending on your circumstances and the structure of the loan.
The lowest rates may start at around 3-5%. Private banks can offer rates at this level in certain circumstances, although accessing these rates may require an existing relationship with the bank or assets being held under management with the institution.
Mainstream banks and building societies may offer rates in the 5-10% range, although not every institution will lend in every scenario. Many mainstream lenders continue to focus on more straightforward property transactions, such as purchasing a new home before selling an existing property or breaking a property chain. They may be less willing to finance more complex scenarios, such as pursuing an investment opportunity, resolving a short-term liquidity requirement or funding a more unusual transaction.
If you are looking to use bridging finance for one of these purposes, alternative and non-bank lenders may be worth considering. They can offer competitive rates and may be more open to financing diverse projects and investments, complex transactions or time-sensitive opportunities. The cost of your bridging loan will depend on your requirements, including the property securing the finance, the amount you want to borrow and how you intend to deploy the capital.
Contact Enness
If you are interested in learning more about bridging loan brokerage, or if there is a specific scenario you would like to discuss, speak to a mortgage specialist.
