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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.

Types of Bridge Loans

Here are the different types of bridge loans. 

  • Closed Bridging Loan 

A closed bridging loan is one that has consent from both parties and is accessible for a defined period of time. Lenders are more inclined to grant it since it provides them more assurance that the loan will be repaid. Additionally, it has lower interest rates.

  • Open Bridging Loan 

In an open bridging loan, there is no set due date and no established means of repayment at the time of enquiry. Most bridging businesses exclude the loan interest from the loan advance in order to protect their financial assets. 

For this kind of bridging loan, lenders impose a higher interest rate because of the ambiguity surrounding loan repayment.

  • First Charge Bridging Loan 

A first charge bridging loan is a property's principal loan and has precedence over all other debts. In the event of a default, the lender of this type of loan will be compensated before any other lenders. 

For this bridge loan, interest rates are lower, minimal even, than second charge bridging loans due to the reduced regulatory danger.

  • Second Charge Bridging Loan 

These loans are only offered for a short period of time, typically less than a year. They have a higher interest rate since they are more susceptible to default. The second charge loan lender commences collection of money from the borrower once the first charge bridging loan lender has been fully compensated for all obligations incurred. However, the bridging lender for a second charge loan is given the same privileges to foreclose as a lender of a first charge bridging loan.

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Features and Benefits of Bridge Loan

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 

What is the Process to Apply for a Bridge Loan in India

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.

Bridge Loan Interest Rates

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.

Name of the lender

Interest rate for bridge loans

State Bank of India

10.35% per annum*

Bank of Baroda

10.25% per annum*

HDFC Bank

12.30% per annum*

Piramal Capital and Housing Finance

16.55% per annum*

Disclaimer: These rates are subject to change. It is advisable to check the latest rates before applying for a bridge loan with a particular lender.

Eligibility Criteria for Bridge Loan

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.

How to Apply for Bridge Loan

You can easily apply for a bridge loan with financial institutions that offer it. You can apply online or offline as per your convenience. Here is how you can apply:

  • Visit the official website of the lender

  • Click on 'Apply Now'

  • Enter your mobile number, date of birth (as mentioned on your PAN card), and other details pertaining to your income, work experience, or more

  • Click on the loan you find suitable to check its particulars, including the rate of interest and repayment tenure

  • Enter the relevant KYC details after choosing the best option

  • Submit your online application for a bridge loan

Documents Required for Bridge Loan

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: The Pros and Cons

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.

When to Use a Bridge Loan

As mentioned, bridge loan financing is ideal to meet the gap between you getting the funds from your old property to buy a new one. Listed below are a few instances when you can apply for a bridge loan:

  • Need to Make a Downpayment

You’ve put your property on sale, but there’s a new property that you need to make a downpayment on. By availing a bridging loan, you can pay the downpayment to secure your new property and sell your old one on your terms.

  • Closing Dates Do Not Align

You have already sold your property, but the closing date does not align with the purchase of your new home. You can make up for the delay in the release of funds by getting a bridge loan.

  • Quick Purchase of Bargain Property

Suppose you see a property that’s on a great deal and need to make quick payments to ensure that you can seal the deal. In this case, if your funds are tied elsewhere, you can take a bridging loan and make the required payments.

  • Want to Downsize or Upsize

You want to downsize or upsize with the funds you get from selling your old property. However, selling a property can take some time and if you have already found your new home, a bridging loan can help close the deal. 

  • Avoid Forced Sale

When you have put your property as collateral and are unable to repay the loan, the lender can proceed with repossession, leading to a forced sale. In such cases, you can get bridge loan financing to pay for the loan and prevent repossession.

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Conclusion

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.

Disclaimer

The information and suggestions provided by BFDL hereinabove is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial advice or endorsement of any sort.

 The information including interest rates or fees, loan amount and other charges with regard to any product, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks or NBFCs. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any application or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products.

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FAQs on Bridge Loans

What is the maximum repayment tenure for a bridge loan?

Since a bridge loan is a short-term loan, its repayment tenure is usually under 2 years.

How long does it take to get a bridge loan?

The processing time for your bridge loan application depends on the lender you choose because the turnaround time is different for every lender.

What is the maximum loan to value ratio available for a bridge loan?

The loan to value ratio for a bridge loan is usually between 80% to 90% but varies from one lender to another.

Are bridging loans easy to get?

Yes, if you meet the lender’s requirements. Generally, you will get a bridging loan if you have a strong CIBIL score and meet other qualifying requirements.

Is a bridging loan cheaper than a mortgage?

No, a bridge loan has a higher rate of interest which makes it more expensive than other mortgages.

How do I qualify for a bridge loan?

To qualify for bridge loan financing, you need to meet the specific requirements set by your chosen lender. However, there are some standard requirements, wherein you need to be between 21-65 years and have a good credit score.

What is the time period of a bridge loan?

Although you can choose a tenure comfortable to you, generally, a bridge loan is for a tenure of less than 2 years. This is because bridge loans are viable means to get short-term financing.

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