Bridging loans are one of the more expensive forms of alternative finance. While lenders terms will vary, this article will explore some typical rates so you can assess whether you feel they are an appropriate fit for your situation.
Generally, around 1-2% of the amount borrowed is charged as an arrangement fee. Therefore, for a bridging loan of £500,000 this would mean a one off fee of £5000-£10,000.
In addition, a 1% monthly interest fee is usually levied which means that on a £500,000 loan, you should expect to pay another £5000 per month.
Some bridging loan lenders charge what is called an exit fee, which means a charge to finish the loan. Exit fees are roughly a further 1%, which means that on a £500,000 loan, you should expect to pay another £5000 per month.
Are Bridging Loans Expensive?
While comparing bridging loans to some other forms of finance might give the impression they’re expensive, the key thing is to realise they are their own entity, and not really comparable. They are intended as a highly flexible short term loan for a specific purpose, offered to borrowers who might not qualify for traditional finance. With their higher levels of risk, lenders generally put their percentages up.