Table of Contents

What is a Bridging Loan?

A Bridging Loan is a short-term loan that is secured against a property, designed to bridge the gap between two financial events. Often utilised in real estate, bridging finance can help property investors and landlords purchase new residential properties before selling existing ones. Typically, bridging loans are taken out for periods ranging up to 18 months, with regulated bridging loans usually capped at 12 months. Their primary purpose is to provide temporary funds until a more permanent financing solution, such as long-term mortgages, can be arranged. This type of finance can be crucial for ensuring that properties bought under time-sensitive conditions are secured without financial delay.

What is a County Court Judgment (CCJ)?

A County Court Judgment (CCJ) is a court order issued by a county court in the UK, mandating an individual to repay a debt. County court judgments are the result of unpaid financial obligation, such as a personal loan.

Once a CCJ is issued, it requires the debtor to make payment towards the repayment of the debt. The judgement will detail how much needs to be repaid and the deadline for making these payments. Even if the debt is eventually paid off, a CCJ will remain on the individual’s credit record for up to 6 years, significantly impacting their ability to obtain new credit or personal loans in the future. Therefore, it is crucial to address and repay debts promptly.

Can I Get a Bridging Loan with Bad Credit?

You can get a bridging loan even with bad credit. Bridging loans are specifically designed to help individuals access the funds they need, for this reason some lenders still consider applicants with a poor credit history. Bridging finance is often provided by specialist lenders who are more flexible than traditional banks and understand that past financial difficulties, such as debt, shouldn’t necessarily prevent you from securing a loan.

Specialist lenders focus primarily on the value of the property and your exit strategy, rather than solely on your credit score. This means that even with a poor credit history, you can still qualify for a bridging loan. However, be prepared for potentially higher interest rates, as lenders often charge more to offset the increased risk associated with lending to someone with bad credit. Despite the higher costs, bridging loans can be a viable solution for quickly accessing money when you need it most.

Why Bridging Lenders Consider Bad Credit Applicants

  • Case-by-Case Evaluation: Unlike traditional lenders who heavily focus on credit scores, bridging lenders assess each application individually. This personalised approach allows them to understand the unique circumstances of each borrower.
  • Property Value as Security: Bridging lenders often prioritise the value of the property used as security over the borrower’s credit history. A valuable property can mitigate the risk associated with lending to someone with bad credit.
  • Exit Strategy: The primary concern for bridging lenders is the borrower’s exit strategy – how the loan will be repaid. If the exit strategy, such as selling the property or refinancing, is solid, lenders are more inclined to approve the loan.
  • Flexibility for Past Financial Issues: Bridging lenders recognise that financial difficulties, such as debt or repayment issues, can be temporary. They understand that past financial behaviour does not necessarily predict future financial stability.

How Bridging Loan Criteria Differ from Traditional Lenders

Criteria Bridging Loan Providers Traditional Lenders
Credit Score Importance Lower importance; focus on property value and exit strategy High importance; heavily influences approval and interest rates
Primary Security Property value Credit score, and property value
Repayment Strategy Focus on exit strategy (sale or refinance of property) Regular monthly payments over the loan term
Flexibility High; tailored solutions based on individual circumstances Lower; standardised criteria and less flexible

 

This table highlights the flexibility of a bridging loan, making them a suitable option for property investors and landlords needing quick access to funds, even with a poor credit history.

Bridging Loan Eligibility with Credit Issues

Bridging loan lenders are generally more accommodating when it comes to applicants with credit issues, such as CCJs, defaults, or a poor credit history. Unlike traditional lenders who heavily weigh credit scores, bridging finance providers focus primarily on the value of the property being used as security and the borrower’s exit strategy. This means that even with a troubled credit background, you can still be eligible for a bridging loan. Many specialist lenders offer loans starting from £50,000 with no maximum limit, and loan-to-value (LTV) ratios can go up to 80%, though 75% is more common. This flexibility allows property investors and landlords to secure necessary funds quickly, enabling them to capitalise on investment opportunities despite past financial difficulties.

The Impact of a CCJ on Bridging Loan Applications

A CCJ will stay on your credit report for six years, even if you pay it off during this time. Having a CCJ on your report will significantly lower your credit score, making it harder to get credit, but not impossible.

While a CCJ impacts credit score and loan eligibility with conventional lenders, bridging loan providers are often more flexible and willing to consider the property value and exit strategy over credit history. However, interest rates may be higher due to the increased risk of lending to someone with a CCJ.

Benefits of Bridging Loans for Bad Credit Applicants

  • Access to Funds: Bridging loans provide access to funds, which can be crucial for time-sensitive financial needs or property purchases.
  • Improved Credit Opportunities: Successfully managing a bridging loan and repaying it on time can help improve your credit rating over time, demonstrating to future lenders that you are capable of managing and repaying debt responsibly.
  • Avoid Financial Pitfalls: Bridging loans can help avoid more severe financial issues, such as bankruptcy or repossession, by providing the necessary funds to resolve urgent financial situations.
  • Tailored Solutions: Bridging lenders often offer customised solutions based on individual circumstances, providing more flexible terms that suit specific needs and exit strategies.
  • Eligibility Checks – No Credit Impact: When applying for a bridging loan most lenders and brokers will conduct a soft credit check and ask to hear about your personal circumstances. This is so they can give expert advice on the likelihood of a bridging loan being accepted without harming your credit score. Of course, this is just a professional opinion, but it could mitigate failed credit applications from appearing on your credit report.

Understanding Bridging Loan Costs and Fees

When considering a bridging loan, it’s essential to understand the various costs and fees associated with it. This helps in evaluating the overall expense and ensuring it aligns with your financial plan. Here’s a breakdown of what you need to know:

Interest Rates and Fees for Bridging Loans

  • Interest Rates: Bridging loans typically come with higher interest rates compared to traditional mortgages due to their short-term nature and the higher risk involved. Rates range, depending on the lender and the loan’s specifics.
  • Arrangement Fees: Lenders often charge an arrangement fee for setting up the bridging loan, which can be a percentage of the loan amount or a flat fee.
  • Exit Fees: Some lenders may also charge an exit fee when the loan is repaid, which could be a percentage of the loan amount or a set fee.
  • Valuation Fees: You will need to pay for a property valuation, which helps the lender determine the loan amount and interest rate. This fee varies based on the property’s location and value.

How to Find the Best Interest Rates

  • Compare Multiple Lenders: Shop around and compare interest rates from various bridging lenders. Different lenders may offer different rates based on their assessment of your financial situation and the property value.
  • Consider Loan-to-Value (LTV) Ratios: Lower LTV ratios often attract better interest rates. If you can provide a larger deposit or have substantial equity in the property, you might secure a more favourable rate.
  • Negotiate Terms: Don’t hesitate to negotiate with lenders. Some may be willing to offer better rates or reduced fees, especially if you have a solid exit strategy and property value.
  • Consult a Broker: A finance broker who specialises in bridging loans can help you find the best rates and terms by leveraging their industry connections and expertise. For expert assistance in navigating bridging loan costs and securing competitive rates, Pyxis Capital offers valuable support. Explore how Pyxis Capital can help you with bridging loan interest calculations and securing the best terms for your situation by visiting Pyxis Capital’s bridging loan interest calculation guide.

How to Factor in Additional Expenses

  • Include All Costs in Your Budget: When calculating the overall cost of the loan, include all associated fees—interest rates, arrangement fees, exit fees, and valuation costs.
  • Evaluate Cash Flow Impact: Assess how these costs will affect your cash flow. Ensure you have enough funds to cover both the loan repayments and any additional fees without straining your financial situation.
  • Plan for Contingencies: Consider potential unexpected expenses or delays. Having a contingency fund can help manage any financial surprises that may arise during the loan term.

Understanding these aspects will help you better plan and manage the cost of a bridging loan, ensuring it meets your financial needs effectively.

Using Bridging Loans to Address Financial Challenges

Using Bridging Loans to Avoid Bankruptcy

You can use bridging loans to avoid bankruptcy if you have sufficient equity in your property, you may be able to use a bridging loan to prevent bankruptcy proceedings. Some lenders offer bridging loans specifically for this purpose, allowing you to access the funds needed to address financial difficulties and stave off bankruptcy. Since this is a specialised area, it’s advisable to consult with an expert to evaluate your specific situation rather than relying solely on general advice available online.

Using Bridging Loans to Prevent Property Repossession

There are several lenders willing to provide bridging loans to help prevent property repossession. This is particularly relevant if your current lender is initiating repossession due to missed mortgage payments. In such cases, the exit strategy for the bridging loan becomes crucial, as it will determine how the loan will be repaid and how effectively you can avoid repossession.

Finding a Bad Credit Bridging Loan

At Pyxis Capital, we specialise in providing bad credit bridging loans tailored to those with poor credit. As a market-leading brokerage authorised and regulated by the Financial Conduct Authority, we bring over 20 years of expertise in financial services to help you secure the bridging finance you need.

Our experienced team is dedicated to delivering a seamless and personalised experience from start to finish. Whether you’re looking to avoid bankruptcy, prevent repossession, or seize a new opportunity, Pyxis Capital provides expert advice and flexible products to support your financial goals. For more information, use our easy to use bridging loan calculator, use our online contact form, or call us today on 01257 543072 and we’ll be happy to help.