What Happens If I Can’t Repay My Bridging Loan?
20th November 2024
By Simon Carr
What Happens If I Can’t Repay My Bridging Loan?
If you can’t repay the bridging loan, there are several significant consequences, depending on your lender and the terms. Bridging loans are short-term, secured loans that borrowers must repay within the agreed period. The most important point, if you can’t repay the bridging loan, is to discuss your individual circumstances with your financial advisor and/or lender.
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Late Payment Fees and Penalties
If you miss a payment, the lender will likely impose late fees and penalties. The loan agreement typically outlines these fees, which can rapidly increase your outstanding balance.
Interest Accumulation
Interest may continue to accrue on the remaining loan balance, especially with bridging loans, which often carry higher interest rates than traditional loans. This can escalate the debt you owe over time.
Repossession of Property
Property typically secures most bridging loans. If you default on your payments (monthly payments or do not repay the loan at the end of the agreed term, as a last resort, the lender may seek legal action to repossess and sell the property to recover their funds.
Legal Action
Lenders may initiate legal proceedings to recover the loan, which could result in additional costs such as legal fees. In severe cases, the court may order the repossession and sale of the secured asset. It’s important to note the lender will have to demonstrate to the courts that they have taken all reasonable steps to work with you to bring about a satisfactory outcome. That is why it is important to maintain open lines of communication with the lender.
Impact on Credit Score
Defaulting on a bridging loan will harm your credit score, making it more difficult to obtain credit in the future. This could lead to higher interest rates and reduced access to finance.
Refinancing or Loan Extension
Some lenders may offer a refinancing option or extend the loan term. However, these options often come with higher fees and interest rates.
Third-Party Debt Collection
If you continue to default, your debt may be transferred to a third-party debt collection agency. These agencies may adopt more focused recovery tactics.
Personal Guarantees
If you have provided a personal guarantee for the loan, the lender may pursue your personal assets to recover any outstanding debt not covered by the sale of the secured property.
Seeking Financial Advice
If you’re struggling to meet repayments, it’s crucial to seek advice from a financial expert. They can help you negotiate with the lender or explore other options such as refinancing or selling the property.
Conclusion
Failing to repay a bridging loan can lead to serious financial consequences, including repossession, legal action, and a negative impact on your credit score. It’s essential to explore alternatives early and seek professional advice to mitigate the risks.
Even more important, ensure you have a realistic and viable exit at the outset before you commit to the bridging loan.
People Also Asked
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Promise Money is a broker not a lender. Therefore we offer lenders representing the whole of market for mortgages, secured loans, bridging finance, commercial mortgages and development finance. These loans are secured on property and subject to the borrowers status. We may receive commissions that will vary depending on the lender, product, or other permissable factors. The nature of any commission will be confirmed to you before you proceed.
More than 50% of borrowers receive offers better than our representative examples
The %APR rate you will be offered is dependent on your personal circumstances.
Mortgages and Remortgages
Representative example
Borrow £270,000 over 300 months at 7.1% APRC representative at a fixed rate of 4.79% for 60 months at £1,539.39 per month and thereafter 240 instalments of £2050.55 at 8.49% or the lender’s current variable rate at the time. The total charge for credit is £317,807.66 which includes £2,500 advice / processing fees and £125 application fee. Total repayable £587,807.66
Secured / Second Charge Loans
Representative example
Borrow £62,000 over 180 months at 9.9% APRC representative at a fixed rate of 7.85% for 60 months at £622.09 per month and thereafter 120 instalments of £667.54 at 9.49% or the lender’s current variable rate at the time. The total charge for credit is £55,730.20 which includes £2,660 advice / processing fees and £125 application fee. Total repayable £117,730.20
Unsecured Loans
Representative example
Annual Interest Rate (fixed) is 49.7% p.a. with a Representative 49.7% APR, based on borrowing £5,000 and repaying this over 36 monthly repayments. Monthly repayment is £243.57 with a total amount repayable of £8,768.52 which includes the total interest repayable of £3,768.52.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
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