Bridge Loan

You may have heard of the terms bridge loan and bridge financing and found yourself wondering what they mean. In simple terms, a bridge loan is a short-term loan granted to help a borrower bridge the gap between a planned expense and a planned income.

For instance, you may be planning to purchase a new house with the proceeds of the sale of another house. However, a gap between the receipt of the latter and the payment of the former can throw your plans into disarray. That is where bridge loan financing comes in to play.

To know more about a bridge loan, its types, eligibility, and more, read on.

Although bridge loans function much the same way as short-term loans, they have certain features that distinguish them from standard short-term loan.

Here are some of the key features of bridge financing:

• The availability of a loan for a short period of time, usually less than a year

• The flexibility to opt for a short and feasible term of repayment

• The backing of collateral security for the loan

• A feasible rate of interest

The major benefits of a bridge loan are as follows:

• The ability to bridge the gap between your long-term financial goals and your short-term financial capability

• No need to procrastinate important decisions, for instance, the purchase of a house, owing to a paucity of funds

• The option to opt for a repayment tenure that is comfortable 

The following two options are available for the bridge loan's structure in India: 

• You may either pay off the debts on your current property or sell it.

• In addition to the liens, a second mortgage is an option.

You can use the residual funds to finance the down payment on your move-up home if you are paying off the mortgage on your current property. You will be making mortgage payments on your new home instead of the loan's monthly instalments.

Moreover, you will have to make mortgage payments on both your current house and the move-up property if you use a second mortgage on top of the liens.

Various leading banks in India offer bridge loans. The following table summarises the interest rates for bridge loans offered by some of the country's leading lenders.

If you wish to apply for a bridge loan, then you must first check the eligibility criteria for the same. Here are the general eligibility criteria for bridge loans in India.

• Age: 21 years to 65 years

• Tenure of the loan: 1 to 2 years

• Quantum of the loan: As per your income and repayment capacity, and the amount of loan requested by you

It is important to note here that the aforementioned criteria vary from one lender to another. You can research the eligibility criteria for the bridge loans offered by specific lenders and ascertain whom to take the loan from.

Here are the documents that you must keep handy whilst applying for a bridge loan.

• A valid photo identity proof

• A valid proof of address

• Your recent salary slips and/or income statements

• Your recent bank statements

• The documents substantiating the clean title of the property you seek to use as collateral (for a bridge loan for a house)

• The details of the property you wish to purchase (for a bridge loan for a house).

Bridge financing is an excellent way to fulfil the chasm between your short-term availability of funds and your long-term goals. You can easily apply for a bridge loan in India at feasible interest rates. 

Bridge loans are one of the best ways to deal with your financial obligations, but just as they have certain benefits, they also have drawbacks. Let’s have a look at its pros and cons:

1. Pros 

• Rapid Processing: Bridge loans have a quicker and easier application procedure, making cash available to the applicant considerably sooner than with a typical loan.

• No Cash Penalties: Unlike typical loans, many bridge loans rely on the collateral asset that the borrower pledges as opposed to having payback penalties.

2. Cons

• Assertively High Rates of Interest: With high rates of interest and substantial processing and maintenance costs, bridge loans are significantly more costly.

• Risk of Asset Loss: The uncertainty of the outcome puts you at risk of being unable to repay the loan. You can end up completely losing your collateral asset as a result of this.

There may be times when you need to make an important purchase but may not be able to due to insufficient funds.  For such short-term financial requirements, a bridge loan is the ideal form of borrowing. Along with flexible repayment tenures, you get lucrative bridge loan interest rates.

The next time you are looking for any kind of loan, visit the Bajaj Markets website; our partners offer a wide variety of loans, including home loans. The home loan interest rate offered is competitive, allowing you to get your dream house affordably.