Tim Leonard
A bridging loan offers the opportunity to ‘bridge’ financial gaps that might occur when trying to simultaneously buy and sell property. But can you get a bridging loan if you have adverse or bad credit? In short, the answer is, you potentially can, but there are no guarantees that you will be accepted for one.
What is a bad credit bridging loan?
A bad credit bridging loan is a short-term loan designed to help borrowers with bad credit overcome a funding gap, in particular those that can arise when selling one property and attempting to buy another. Bridging loans generally are usually relatively quick to arrange and secured against a property, which could be claimed by the bridging loan lender if you fail to pay back your bridging loan.
You may have a bad credit score if you’ve experienced credit problems in the past, perhaps because you’ve not made loan repayments when you should.
» MORE: What is a bridging loan?
Getting a bridging loan with bad credit
Lenders consider applications for bridging loans case by case, on their own individual merits. Each lender will have its own set of bridging loan lending criteria, and not every lender will consider borrowers with adverse credit.
As a rule, having bad credit tends to make it more difficult and expensive to secure credit. This is usually true for bad credit bridging loans too ‒ you should find it much easier to get a bridging loan, and one with a lower interest rate, if you have a good credit score.
That said, you might find lenders are more open to approving a bridging loan if you have bad credit than if you applied for a mortgage or credit card instead.
This is because, while bridging loan lenders will always look at your credit score, other aspects of your application might be given greater importance when considering a lending decision. Typically these include:
The exit strategy you have in mind
An exit strategy is your plan for paying off the loan. The stronger a lender thinks your exit strategy is, the less risk it will feel it is taking on and the better your chances of approval.
Planning to sell the property the loan is secured against is often considered the simplest exit strategy. It might also be looked on favourably by a lender if the property is already on the market, selling is likely to be straightforward, and you have a detailed plan and timeframe for the sale.
Another popular exit route is remortgaging. However, when applying for a bad credit bridging loan, this might be considered a weaker strategy, because having a bad credit score might make it more difficult to remortgage. For this reason, a bridging lender might want you to have an agreement in principle (AIP) for a remortgage deal if this is your planned exit route from an adverse credit bridging loan.
Other potential exit strategies might include selling a different property to the one the loan is secured against, selling other investments you might have, or an inheritance that you can prove will be forthcoming. Whether a bridging loan lender considers these or any other strategies to be viable will depend on the circumstances that surround them, including the reliability of their value and how easily and quickly the money can be realised. Having more than one exit strategy in place is likely to be looked at favourably by lenders.
The security you can put forward
The more security you’re able to put down as a safety net for a bridging loan lender to fall back on if you don’t pay back the loan, the better your chance is likely to be of securing a bridging loan with bad credit.
So as well as putting forward the property the loan is being secured against as collateral, you might also need to consider what you can offer as extra security to a lender. This may include putting down a larger deposit, or offering an additional property or other valuable assets that you might own as extra collateral. Different lenders may accept different forms of security, but remember that whatever you put forward is at risk if you don’t make the repayments on your loan.
» MORE: What is security on a loan and which assets can be used?
What types of bad credit will bridging lenders consider?
Although each bridging loan application is usually considered on a case-by-case basis, and lending criteria can differ between lenders, there are certain red flags that might make it extra difficult to secure the loan that you want.
If the reason for your bad credit includes having a county court judgment (CCJ) against you, your home having been repossessed, bankruptcy, or your enrolment in a debt management plan, you could find your options are more limited, although not necessarily non-existent.
Indeed, if any of these things occurred several years ago, or if you have a strong exit strategy and a suitable amount of assets for security, there might be certain lenders that are willing to take your application further. Similarly, if you have no credit history, or your bad credit is due to something more recent but relatively minor, such as missing a repayment on your mortgage, this may not prove an issue with the right exit plan and security.
Finding a knowledgeable broker can often make the difference in these situations, as they are likely to know which lenders you stand a better chance of succeeding with. Of course, you can also search the market for yourself.
Are bridging loans credit checked?
Yes, bridging loan lenders will always perform a credit check on you before offering a loan. However, they will also look at your application as a whole, including the security you can offer and your exit strategy. Both are important factors that could potentially make up for any credit issues you might have.
» MORE: How to check your credit score
Do you need a good credit score for a bridging loan?
Having a good credit score might improve your chances of securing a bridging loan and being offered a lower interest rate. However, having adverse or bad credit does not automatically mean you won’t be able to get a bridging loan. This is because lenders consider other factors, such as the assets you can provide as security and the viability of the plan you have for paying back the loan, alongside your credit situation.
Can businesses get commercial bridging loans with bad credit?
It may be possible for businesses with bad credit to access commercial bridging loans. Much will depend on the reason for the business having adverse credit, and whether a lender sees sufficient strength in the loan exit strategy and security offered to proceed with the loan application. Lending criteria will also differ between commercial bridging loan lenders, so being rejected by one does not necessarily mean you’ll be turned down by others.
» COMPARE: Commercial bridging loans
What if I am turned down for a bad credit bridging loan?
If you’ve only applied to one lender, it could still be worth exploring others, as most will have different lending criteria. You could also ask why you were rejected, and if it was because of your exit strategy or the assets you were putting forward as security, you might be able to revisit your plans.
Finding ways to improve your credit score is another option, although if you need a bridging loan fast, you might not have the time to wait for the improvement in the score to show up.
Is there an alternative to a bridging loan?
An unsecured loan and increasing the size of your mortgage are potential alternatives to bridging loans that you might want to consider before taking out bridging finance or if you’re struggling to get a bridging loan.
If your credit history is a concern, there are lenders which offer bad credit secured loans and other types of loans for bad credit.
If you’re seeking finance for commercial purposes, there are several ways to get a business loan with bad credit or you might want to consider a commercial mortgage.
» COMPARE: Commercial mortgage rates
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