Can I get a bridging loan with a guarantor?

Can I get a bridging loan with a guarantor?

Are you thinking about getting a bridging loan but worried about your eligibility? One common question is whether a guarantor can help secure a bridging loan. In this article, we’ll explore the idea of using a guarantor for bridging loans, how it works, and what you need to consider.

Understanding Bridging Loans

A bridging loan is a short-term finance option used to ‘bridge’ the gap between debts coming due and the main line of credit becoming available. These are often used in real estate to help buyers purchase a new property before selling their current home.

These loans are quick to arrange but often come with higher interest rates than traditional loans. They are meant for short periods, typically from a few weeks to up to 12 months.

The Role of a Guarantor in Bridging Loans

A guarantor on a bridging loan is someone who agrees to back the borrower’s debt. If the borrower can’t pay the loan, the guarantor will pay. This can make it easier to get a loan, especially if your credit history or financial situation might not meet the usual requirements.

Guarantors are usually close family members or business partners who have a strong credit profile and trust in the borrower’s ability to manage the loan.

Ordinarily the guarantor will need to have good assets and offer them as additional security. This could be in the form of a personal guarantee or registering a charge on their property

Benefits of Using a Guarantor for Bridging Loans

Having a guarantor can offer several benefits:

• Improved Loan Terms: You might get better interest rates or more flexible terms with a guarantor.
• Higher Loan Amounts: Lenders might offer more money if a reliable guarantor backs the loan.
• Access for Less Qualified Borrowers: If your financial history or bridging experience isn’t strong, a guarantor might help you qualify.

Risks and Responsibilities for Guarantors

Being a guarantor is a big responsibility. Guarantors need to understand the risks:

• Financial Risk: If the borrower fails to pay, the guarantor must cover the debt, which could be a large amount. The loan may be secured on property they own
• Credit Score Impact: If the loan goes unpaid, it could also hurt the guarantor’s credit score.
• Legal Implications: Guarantors should be aware of all legal aspects before agreeing to this role.

How to Secure a Bridging Loan with a Guarantor

To get a bridging loan with a guarantor, follow these steps:

1. Choose a Reliable Guarantor: Look for someone with a good credit history and experience. They should plenty of equity in their assets and understand the risks.
2. Check Loan Options: Compare different lenders to find the best terms and rates.
3. Prepare Documentation: You and your guarantor will need to provide financial documents to prove your ability to pay back the loan and your creditworthiness.
4. Legal Advice: It’s wise for both you and your guarantor to get independent legal advice before signing any agreements.
5. Mortgage expert: Use a broker to help find the best products and to sense check each part of your plan and proposed exit.

People Also Asked

What is a bridging loan used for?

Bridging loans are mainly used in real estate to help cover the cost of a new property before selling an existing one. They can also help cover short-term cash needs in business.

Can a bridging loan be paid off early?

Yes, many bridging loans can be paid off early. However, check if there are any fees for early repayment.

What are the typical interest rates for bridging loans?

Interest rates for bridging loans are generally higher than for regular loans, often ranging from 0.55% to 1.5% per month.

How fast can I get a bridging loan?

Bridging loans can be arranged quickly, sometimes within a few days, depending on the lender and the complexity of your situation.

Do I need a deposit for a bridging loan?

Yes, most bridging loans require a deposit, typically around 20-40% of the loan amount.