In this brief blog, we will cover if you can get a bridge loan for bad credit. Getting a bridge loan for bad credit is, of course, possible but it will depend on the type of bad credit and your personal circumstances.
You may have gotten yourself into some financial mess in the past and as a result of this ended up with bad credit. Can this bad credit now stop you from getting a bridging loan after so many years have passed?
What is a bridge loan?
A bridge loan is a short term secured loan which is secured on an asset such as a house. A bridge loan is usually given for 12 months but can be given for as long as 36 months.
Bridge loans are interest-only loans, almost like interest-only mortgages this means you will only have to repay the interest element of the bridge loan and the capital borrowed will be repaid at the end of the bridge loan term.
Bridge loans don't have a maximum amount they will provide but much like mortgages, they are offered based on the value of the asset they are lending on. A bridge loan will usually have a loan to value of about 75% meaning you will have to put a mortgage deposit of about 25% down.
Bridge loans will usually have higher interest rates than mortgages and you will have to pay the legal fees, valuation fees and any bridge loan arrangement fees.
Types of Bridge loans
A bridging loan can be either closed or open. A closed bridging loan has a set repayment date, while an open bridge loan doesn’t, though payment is expected before the loan period runs out. There will usually be no early repayment fees.
When do you need a bridge loan?
Bridge loans are fast loans which you can use to bridge different gaps such as the time it takes for someone to buy your house when you are buying another property. In this instance, you could use a bridge loan to purchase your new home and as soon as your current house sells you could then use the funds received from there to remortgage your bridge loan on to a better residential mortgage.
Without a bridge loan, you may have missed out on your new home purchase as you may not have met the mortgage affordability requirements for another mortgage because you had to continue making monthly mortgage repayments on your current property.
Bridge loans are made for these particular scenarios and will more often than not be able to lend to you in this case but can you get a bridge loan with bad credit?]
How is interest charged on bridge loans?
Interest on bridge loans is charged in 3 ways
Just like an interest-only mortgage, you pay off the interest each month and the capital borrowed at the end of the term with your repayment vehicle.
There are no monthly interest payments, interest is compounded and added to the capital borrowed. Everything is then paid off at the end of the bridge loan term with your repayment vehicle.
You ‘borrow’ the interest as well as the loan amount. The total amount payable is calculated at the beginning of the term, based on how long the term is and everything is payable at the end with your Bridge loan repayment vehicle.
Can you get a bridge loan with bad credit?
In most cases, you will be able to get a bridge loan with bad credit.
There are several factors which will affect your chances of getting a bridge loan with bad credit and tackling each one of them could improve your chances significantly.
The asset you use as security
The reason why it is much easier to get a bridge loan with bad credit than it may be with residential mortgages is that bridge loans are much more focussed on the asset you used to secure the bridge loan and because bridge loans are short term loans.
As far as the asset you used to secure the bridge loan will be sufficient in value for the bridge loan lender to recoup what they have lent to you then they are usually content in offering you a bridge loan with bad credit.
Your exit & repayment plan
Bridge loan lenders will also usually offer you a bridge loan with bad credit as long as you satisfy their requirements for a suitable bridge loan repayment method. If you are for example waiting on a property to sell before you remortgage from a bridge loan or you are doing some minor construction work before you remortgage to a bridge loan then you may find that there are bridge loan lenders who will lend to you with bad credit.
If on the other hand, you intend to buy land and then build a property which you hope to sell and then repay the bridge loan with the sale process then you may find that the bridge loan lender may not offer you a bridge loan with bad credit as the likelihood of you seeing everything to the end and getting the optimal result you envision may be diminished by several factors beyond your control.
If you plan to remortgage
If your exit plan for a bridge loan is also to remortgage your property then you may find it harder to get a bridge loan with bad credit as many bridge loan lenders will simply not lend to you. This is because they are fearful that any missed repayments on your bridge loan will further ruin your chances of getting a mortgage or that you may not be able to get a remortgage with your current bad credit.
Your experience as a developer
If you are also an experienced property developer and you are seeking a bridge loan with bad credit to develop some property then you may find that the bridge loan lenders are more willing to provide you with an offer based on your experience.
Your bridge loan deposit
Putting down a bigger bridge loan deposit could also go a long way to improving your chances of getting a bridge loan with bad credit. Most bridge loans will require a deposit of 25%. If you increase this up to 35% or even 40% then you may be able to get a bridge loan with bad credit. You should seek expert advice from your bridge loan broker on this matter.
Your property type
The type of property you want to get the bridge loan with bad credit for may be a huge factor in whether you are successful or not. Most lenders will prefer to secure loans on standard assets which they are certain they can repossess and sell without any loss of value. Most bridging loan lenders may therefore not offer a bridging loan with bad credit if your property type is a non-standard construction property.
If your property is also a commercial or unmortgageable property then this may even compound the issue further.
This is on a high-level basis, in reality, most bridge loan lenders will want to look at your bad credit on a case by case basis to further understand the type of bad credit you got yourself involved in and how this may end up affecting your ability to repay the bridge loan.
When considering bridge loans bad credit could include:
A debt management plan
A home reposession
Missed payments on credit agreements
Late payments on credit agreements
Missed mortgage payment
No credit score
Low credit score
If you are considering getting a bridge loan with bad credit then the bridge loan lender may insist you put down a larger deposit.
You can speak to a bridge loan broker who may be able to assist you in getting a bridge loan with bad credit.
Can bridging loans help improve your credit score?
Yes, bridge loans can help improve your credit score by making the monthly repayments on your bridging loan this could help you improve your credit score.
Some of the things you can do to get accepted for a bridge loan with bad credit include:
Get on the electoral roll
Check your credit score for error on all four credit bureaus(crediva included) with Checkymyfile
Pay all your bills on time
Keep your credit utilization below 30%
Don’t make too many credit applications in a short space of time
Do not close your credit accounts
How to get a bridge loan with bad credit?
If you want to get a bridge loan with bad credit then you may want to consider seeking the help of a bridge loan broker who has some experience with bad credit or alternatively seek the help of a bad credit mortgage broker who has some experience with bridge loans.
The mortgage broker will advise you on what may be needed for you to get a bridge loan, any necessary documents or explanatory notes you may need to include in your bad credit bridge loan application.
This could be jewellery which has been appraised, shares in a business, other property, a car etc.
The mortgage broker will also advise you on the strength of your existing strategy and advice you on if they believe you should seek an alternative exit strategy to increase the likelihood of you getting a bridge loan with bad credit..
Can you get a bridge loan with no credit check?
No, you can’t get a bridge loan with no credit check as with most lenders who lend on a secured asset a credit check is important and we haven't heard of a bridge loan lender who doesn't perform a credit check.
Bad credit bridge loans for businesses
Businesses also have credit scores which can be checked by checking the credit bureau. If a business has a bad credit score and history then they may need specialist mortgage advice to get a bridge loan for a business with bad credit.
As a limited company, the bridge loan lender may want personal guarantees from the directors and if your company is an SPV you may find the number of bridge lenders available to you with a company with bad credit may increase.
Are bridging loans regulated?
Bridging loans can either be regulated or unregulated. Regulated bridging loans are those that have to do with residential purchases while unregulated bridging loans are those for commercial purposes and buy to let.
What is the minimum I can borrow with a bridging loan?
Bridging loan lenders have a variety of bridging loan minimum borrowing amounts. You may be able to borrow £50k, £30k or even £10k with some as a minimum amount.
Can you get a bridge to let agreement with bad credit?
Yes, you may be able to get a bridge to let with bad credit with some specialist bridge loan lenders. Some lenders will be able to provide both the bridge loan and the buy to let mortgage you will need later on. This is also known as a bridge to let agreement, and will usually involve getting an agreement in principle for the buy to let mortgage when the loan funds are due to be released.
Non-status bridging loans
Non-status bridge loans are where you get a bridge loan at an interest rate that is much higher than usual. The bridge loan lender will pay little time to the borrower but rather to the asset and specifics of the loan. A non-status bridge loan could be good for you if you have little income but a lot of assets which you can put as collateral.
If you are considering getting a non-status bridge loan then you may want to speak to a mortgage broker who may be able to assess your lending options in more detail.
Can you get a second charge bridging loan with bad credit?
Getting a bridge loan with bad credit may be difficult as many bridge loan lenders will see the chances of you defaulting as being very high and the interest rates charged on 2nd charge bridge loans may be unaffordable.
A 2nd charge bridge loan also means the lender will be 2nd in line to claim any proceeds from the property should you default and the property is repossessed.
Can you get a third charge bridging loan with bad credit?
Getting a 3rd charge bridge loan may be almost impossible but there are many specialist bridge lenders out there that just may be willing to lend to you. Your bad credit may, however, complicate issues further and make the 3rd charge bridge loan unaffordable due to their high interest rates or unrealistic.
You should speak with a bridge loan broker who may be able to analyse your options or a 3rd charge bridge loan with bad credit.