When financial challenges arise and you find yourself in need of quick funds, bridge loans can be a viable solution. They can help to bridge the gap between a pressing financial need and a more permanent financial solution.
However, for those who have less-than-stellar credit, the question that springs to mind is can you secure a bridge loan with a poor credit score?
In this blog, we explore the options available for individuals who might find themselves in this situation.
Understanding bridging loans
Before we dive into the discussion about bad credit scores and bridge loans, it can help to clarify what a bridge loan is.
A bridge loan, often known as a gap loan or interim financing is a short-term loan used to bridge a financial gap.
The loans are typically utilised when someone needs immediate funding but is waiting for other long-term financing to come through. For example, you may need a bridge loan when buying a new home, while waiting for the sale of your existing one to finalise.
The role of credit scores
The reason why your credit score plays such a significant role in your application for any type of loan is that lenders often review them to determine whether you are a reliable borrower.
This typically involves assessing your ability to repay the loan and the impact of the loan on your financial stability.
A high credit score typically indicates a lower-risk borrower, while a lower score might raise concerns for lenders, as you are at a higher risk of defaulting on the loan.
The impact of bankruptcy
Now let’s address the elephant in the room: bankruptcy. If you’ve filed for bankruptcy, it can have a significant impact on your credit score. Bankruptcy remains on your credit report for six to seven years. During this period, your credit score is likely to be adversely affected.
Securing a bridge loan with bad credit
For individuals with bad credit, securing a bridge loan can be a challenge. Bad credit may be a result of past financial missteps, such as late payments, defaults, or bankruptcy, which naturally makes lenders hesitant to accept your application.
However, it’s important to note that not all lenders have the same strict criteria. Some specialise in working with borrowers who have imperfect credit histories.
So can you still secure a bridge loan with bad credit, even after bankruptcy?
The answer is yes, but you’ll likely encounter some limitations. These include:
Higher interest rates
Lenders may offer bridge loans to individuals with bad credit, but they often compensate for the increased risk by charging higher interest rates.
Shorter terms
Bad credit bridge loans might come with shorter repayment terms. This means you’ll need to repay the loan quicker, which can potentially put more financial strain on you.
Loan-to-value
Lenders may be more willing to approve a bridge loan if you have substantial collateral, such as properties or savings that can cover the loan amount. This collateral can offset the risk associated with bad credit.
Private lenders
Consider exploring private lenders or alternative financing options. These lenders might have more lenient credit requirements compared to traditional banks.
Improving your chances
While getting a bridge loan with bad credit is possible, it’s essential to work on improving your creditworthiness over time. You can do this by paying your bills on time, reducing outstanding debt, and carefully managing your finances.
Improving your credit score isn’t something that can magically happen overnight but it’s worth starting the process as soon as you can.
As your credit score improves, you’ll have access to more favourable loan terms in the future.
Bridging Loans from Rapid Bridging
With the right approach, a bridge loan can serve as a valuable tool in achieving your financial goals. To find out how Rapid Bridging can help you secure the funding you need, get in touch with our team of experts today.
