A lender will almost always allow you to pay the loan back earlier than initially planned. Depending on the lender and the circumstances of the loan, you may be charged a fee for paying this back early, known as an early exit penalty. This fee is not always charged, so it’s important to check whether it applies to you before opting for an early repayment.

A bridging loan is intended as a short term means of finance, with regulated companies typically offering a maximum loan period of 12 months, while non-regulated providers will offer up to 24 months. It’s expected that borrowers won’t hold onto the loan for too long, however paying it off earlier than the agreed-upon date is something else entirely.

Here, Octagon Capital answer some commonly asked questions around paying back a bridging loan early, as well as providing a deeper insight into how the bridging loan process works.

 

Will I Get Charged for Early Repayment?

You could potentially get charged by your lender for early repayment. This is known as an early exit penalty. Some lenders will charge this while others will not – check your loan agreement terms to see if you’ll have to pay this or not.

 

Calculating-costs-for-bridging-loan

 

Borrowers can potentially save money on their interest payments for a bridging loan if they pay back early, as this is charged monthly for as long as it takes for full amount to be repaid. This is why bridging loan lenders may charge an early exit penalty, as they are losing money they would’ve otherwise received from you in interest if you were to have completed the loan to its full term.

 

Can I Get Out of a Bridging Loan?

You can only get out of the money owed from a bridging loan by paying what the lender is owed. This can be done via an early repayment of the loan, which, as previously mentioned, almost all lenders will offer.

In contrast to this, if you are unable to pay the loan back for the set repayment date, you can discuss refinancing options with your lender. While you might be able to arrange a more manageable payment plan with the lender when this issue occurs, you’ll still have to pay for the bridging loan you took out.

As a final resort, if a new payment plan can’t be worked out or the lender can’t get hold of you for some months, the property/valuable asset secured on the loan may be repossessed.

 

How Do Bridging Loans Work?

As the name suggests, bridging loans work by effectively “bridging” the gap between the purchase of one thing and the sale of another.

For example, if you’re looking to purchase a new house, but are waiting for the sale of your current home to go through, you can take out a bridging loan to help temporarily cover the cost of the new home.

 

Moving-house

 

Bridging loans are also great for development projects, enabling property developers to access hundreds of thousands or millions of pounds to cover the cost of their projects – with Octagon Capital, you can borrow from £50,000 to £25 million for up to 24 months.

As bridging loans are intended for short-term use, the loans are priced monthly instead of annually, borrowers having the option to pay their interest off each month as it’s charged, or “roll up” the repayments until the end of the loan term.

Below are some key features to expect with bridging loans from Octagon Capital:

  • Borrow a minimum of £50,000
  • Borrow a maximum of £25 million
  • Borrow for up to 24 months
  • LTV for regulated – 75%
  • LTV for non-regulated – 80%
  • Adverse credit histories considered

 

Open vs Closed Bridging Loans

The repayments for bridging loans can vary depending on whether you have a closed or open bridging loan.

A closed bridging loan is when the loan comes with a fixed repayment date. These types of bridging loans can typically be cheaper than open bridging loans, regarded as less risky. With a closed bridging loan, borrowers may still be able to pay the loan back early before the set repayment date.

An open bringing loan is when the loan does not come with a fixed repayment date. This helps give borrowers more freedom over their payment of the loan. With an open bridging loan, you’ll still have to have an exit strategy to ensure that the loan will be repaid.