A key factor affecting your ability to obtain a Bridging Loan is your credit score. A low credit score may indicate a higher risk for the lender and, thus, result in loan denial or less favourable terms.
This article will explore the relationship between credit score and Bridging Loan eligibility, providing information and options for individuals with bad credit.
This article aims to help those with bad credit understand their options and take steps to improve their chances of obtaining a Bridging Loan.
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- What is a bad credit bridging loan?
- Can I get a Bridging Loan with Bad Credit?
- Why are bridging lenders more open to bad credit?
- How To Get a Bridging Loan with Bad Credit?
- When is Bad Credit a Dealbreaker in a Bridging Loan Application?
- Are Credit Scores a Factor at All in Bridging Finance?
- Can I Get a Bad Credit Bridging Loan Without Security?
- Alternatives to Bad Credit Bridging Loans
What is a bad credit bridging loan?
A bad credit bridging loan is a type of short-term financing option designed for individuals or businesses with a poor credit history. It provides temporary funds to bridge the gap between selling an existing property and purchasing a new one.
Unlike traditional loans, bad credit bridging loans are accessible to borrowers with low credit scores, previous defaults, or financial difficulties.
These loans typically have higher interest rates and stricter terms compared to standard bridging loans, as they are considered higher risk by lenders. Despite the borrower’s bad credit, these loans can offer a lifeline for those in need of immediate funds during property transactions or other urgent financial situations.
Can I get a Bridging Loan with Bad Credit?
The simple answer is yes, you can get a bridging loan with bad credit because credit ratings are not the principal lending criteria for bridging finance.
For traditional forms of finance such as mortgages, bank loans and credit cards, credit scoring plays an essential part in mapping out patterns of behaviour which may indicate higher risk.
With bridging finance, the lender is principally concerned with the security put up by the borrower, a non-negotiable requirement. Once this is in place, the lender has their own money protected since defaulting on repayments would give the lender the right to force the sale of the security, as per the finance terms.
Since they are protected, bridging lenders can afford to be less concerned with overall credit history.
Why are bridging lenders more open to bad credit?
Bridging lenders are often more open to bad credit, primarily due to the asset-based nature of these loans. The value and quality of the underlying asset, such as property, frequently hold more weight in the lending decision than the borrower’s credit history. This tangible security provides lenders with a clear path to recoup their funds, thus reducing the perceived risk.
Additionally, the short-term nature of bridging loans, often lasting less than a year, may contribute to a lender’s willingness to overlook credit history since the timeframe for repayment is reduced.
Market competition and specialised lending practices also play roles. Some bridging lenders target niche markets, including those with bad credit, and they may charge higher interest rates to compensate for perceived risk.
How To Get a Bridging Loan with Bad Credit?
Getting a Bridging Loan with bad credit may be challenging, but you can take steps to improve your chances of approval. Here’s what you can do:
- Prepare the relevant documents – Gather essential documents like proof of identity, address, income, and bank statements to support your loan application. Providing evidence of your current financial stability can be helpful, especially if you have past credit issues.
- Check your credit report – Understanding the issues in your credit history can help you address any discrepancies and build a stronger argument for loan repayment.
- Consult with a specialist – Working with a specialist broker like ourselves who is experienced in bad credit bridging loans can increase your chances of finding a lender that is willing to work with you. We can guide you through the process and ensure you only apply for loans from lenders that meet the eligibility criteria.
When is Bad Credit a Dealbreaker in a Bridging Loan Application?
Bad credit can be a dealbreaker for a bridging loan application if the lender believes that the borrower is not likely to be able to repay the loan. This could be due to a number of factors, such as a history of missed payments, defaults, or bankruptcy.
The following types of bad credit are more likely to be a dealbreaker for a bridging loan application:
- Recent defaults or CCJs
- A history of missed payments
- A very low credit score
Are Credit Scores a Factor at All in Bridging Finance?
Bridging finance providers will still check the credit ratings of those who apply to borrow from them as part of a wider risk assessment.
While each organisation will have slightly different practices, the basic method is to use a credit scoring program to investigate the recent activity, looking for signs of financial distress, late payment, excessive debt markets or other fiscal mismanagement.
A low credit score may indicate to the lender that you are a higher-risk borrower, and they may be less likely to approve your loan application or offer less favourable terms.
Certain loan providers will consider this type of finding enough to refuse the bridging, while others are happy to offer the finance anyway. This is where a good finance broker such as ourselves can help by sourcing the best deal for your situation.
Can I Get a Bad Credit Bridging Loan Without Security?
The simple answer is no! You can’t get any type of bridging loan without security since this gives lenders the surety they will not lose their money.
Most lenders require property as security, though some will accept other forms of collateral.
These properties are secured by a first, second charge or occasionally a third charge.
Alternatives to Bad Credit Bridging Loans
Non-Status Bridging Loans
While it is even possible to get a regular bridging loan with poor credit, another option for those in that situation is to choose a non-status loan.
Non-status bridging finance is the terminology for a loan where the lender primarily considers the property deal as the impetus for the loan. Although all bridging is effectively non-status, it has come to mean a particular type of product that delivers fast funding without the need for credit checks or income verification.
For those whose credit hampers their ability to obtain competitive loan rates, one option is to use a guarantor, a third party who signs on as a guarantor.
This guarantor assumes legal responsibility for the debt should the borrower refuse to pay.
Where the borrower has access to a family member or friend with enough trust in the venture to sign on for this, guarantor loans can be a useful option.
Do You Need Help Finding Bridging Finance Despite a Poor Credit History?
Contact us for free, immediate assistance sourcing the best deal for your situation. With over 40 years of finance experience and over 50 lenders at our disposal, we are here to help.
What is a bad credit bridging loan?
It’s a short-term loan for individuals with a poor credit history to bridge the financial gap between purchasing a new property and selling their existing one.
How long does it take to get approved for a bad credit bridging loan?
Approval for a bad credit bridging loan can take anywhere from a few days to a few weeks, depending on the lender and the complexity of the application.
Can I get a bad credit bridging loan if I have a history of bankruptcy or insolvency?
It depends on the lender, but some will consider borrowers with a history of bankruptcy if they have sufficient security.