Secured loan or bridging loan - difference?

chrisyd

Hi,

I have inherited a house that I am doing up. To do the work we need £40k and when it is completed we will get a BTL mortgage to pay this off (as well as my own mortgage).

Anyway, been speaking to a few companies about a Bridging Loan and while the interest is pretty high (as well as the admin fees) it is only for a short period of time (house is expected to be completed by mid march at the latest).

Spoke to a company this morning and they suggested a secured loan instead. I asked what the difference is and the response was basically with a bridging loan you can accumulate the payment until the end and with a secured loan you have to pay each month. I also noticed that with the bridging loan there are no early repayment charges and with a secured loan it is usually 1 month's interest if you repay early, but the interest is a lot lower.

The main reason I am investigating this avenue is the builder has already started work and we need to pay him very soon i.e. within 5 days ideally.

If I go down the secured loan route (depending on the quote I get) am I going to be 'stitched up' or is this a plausible way to attain funds quickly/easily/cheaply for 4 months or so?

Sorry if I have posted this in the wrong forum.

thanks

Thrugelmir

The interest rate reflects the risk to the lender. In your current position there's unlikely to be a cheap rate as such.

chrisyd

Thanks,

The bridging loan rate is coming in at around 1.1 -> 1.5% per month which is almost like credit card rate and it is still secured on the 'refurbed' property. I am just worried if I go down the secured route then the exit strategy will be a nightmare.

thanks

chrisyd

Speaking to the loan company for a secure loan and they have come back with 14.4% apr (looks like the other half may have some credit issues in the past - to be investigated). Anyway, when I said I would repay the loan after 4 months they said that you can do early repayment as long as you give 1 months notice. There is a fee for early repayment of 1% month interest based on the gross outstanding.

I did ask them what this actually meant and to give me some figures but they said they were not allowed.

Can anyone explain this to me in English what this means. I am a little wary when someone does not tell me the honest facts.

The one-time cost (which is added to the loan) is £3600.

thanks

bigadaj

It's very worrying that you have started the works with no idea how you're going to pay for it.

A secured loan is generally taken out by people with poor Credit history's who have little choice or alternative and can be extremely expensive.

The bridging loan is more suited for your purposes even though the interst rate is higher as it is only designed for the short term, whereas I'd have fears of the charges for early repayment of a secured loan.

The secured loan sounds as though there are additional charges, have you checked this for the bridging loan as well, whichever you choose it sounds as though it won't be cheap.

The other thought, which is a shot in the dark, is to see whether the builder will delay payment for an additional charge. He probably wouldn't accept as it's a big hole in his cash flow but if the carrot is big enough he might do and you could offer him initially half of your additional loan costs.

jonesMUFCforever

Sorry bigadaj but IMO you are completely wrong about secured loans.
Are you confused between secured loans and secured credit cards?


A secured loan is just another name for a mortgage on a property.

bigadaj

jonesMUFCforever wrote: »

Sorry bigadaj but IMO you are completely wrong about secured loans.
Are you confused between secured loans and secured credit cards?


A secured loan is just another name for a mortgage on a property.

Yes, but normally at a higher rate as it is normally a second charge on a property. I woudknt have thought it was suitable in this circumstance, particularly as the set up fee looks horrendous, and the Least worst solution is a bridging loan even if it is at a higher rate. However there are no doubt arrangement fees and charges on this as well so either option is going to prove very expensive.