Can you pay off a bridging loan early?

paying off a bridging loan early
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    Bridging loans are short-term financing options that are commonly used to bridge the gap between purchasing a new property and selling an existing one. They offer flexibility and quick access to funds, making them a popular choice in the UK property market.

    However, borrowers often wonder if they have the option to repay a bridging loan early and, if so, what implications it might have. In this article, we explore whether it is possible to pay off a bridging loan early and discuss the potential benefits and considerations associated with early repayment.

    It is possible to repay a bridging loan early. Most lenders allow borrowers to settle the loan before the agreed-upon date; however, some lenders may charge an early repayment fee. By carefully reviewing the terms and conditions of the loan agreement, you can avoid any potential charges.

    One are experts in their field, with over 100 years of property experience. If you are looking for bridging finance or need support to repay a bridging loan early, then get in touch today!

    Understanding your exit strategy

    Your bridging loan exit strategy is essentially a repayment plan you and your broker put together before entering a bridging finance agreement. It gives a clear outline as to how and when you will repay the loan.

    To gain a clear understanding of the early repayment process and any associated costs, it is recommended to have a conversation with your lender. Discuss your intention to repay early and ask for a breakdown of any fees or penalties that may apply.

    Lenders are obligated to provide this information, which will help you make an informed decision and better understand your exit strategy.

    What is the repayment period of a bridging loan?

    The repayment period refers to the length of time in which you plan to repay a bridging loan. These terms and the loan period will be determined before entering an agreement.

    Typically bridging loans are offered for 12-month periods, with regular monthly payments. This may vary depending on bridging loan lenders and specific circumstances.

    However, some lenders might impose a specific minimum loan term. This means that borrowers may not have the option to repay the loan within a certain timeframe, usually within a few months of taking out the loan.

    Therefore, clarifying the minimum term requirements with the lender before signing the loan agreement is crucial.

    Open bridging loan

    An open bridging loan gives borrowers more flexibility as it does not require a fixed repayment date.

    Open bridging loans can be a preferred option for those who do not have a specific date for when their funds will be available.

    However, it is important to note that many lenders will expect loans to be repaid within a year.

    Closed bridging loan

    A closed bridging loan is a type of loan that has a fixed repayment date. The fixed repayment date will often be agreed upon when you know you’ll be able to repay the loan – this could be beneficial if you are waiting for the sale of an existing house to go through.

    Are there exit fees?

    Some bridging loan lenders may charge an exit fee or an early repayment fee to compensate for the lost interest income that results from early settlement.

    These fees can vary, so it is important to calculate whether the potential savings from repaying early will outweigh the associated costs.

    Steps to take when paying off a bridging loan early

    Having a good broker will help save you time and money when you are looking to repay a bridging loan before the agreed end date.

    A good bridging broker will be able to find you the best lender, advise you on how to make early repayments and support you during the process.

    So, if you think you are ready to repay early, then be sure to speak with your bridging loan broker and the lender to ensure you are fully aware of the implications of paying off the loan early.

    For professional bridging finance support, please fill out our enquiry form, and we’ll be in touch.

    Benefits of paying off a bridging loan early

    Early bridging loan repayment can provide borrowers with certain benefits.

    Firstly, it allows borrowers to save on interest payments. Since bridging loans tend to have higher interest rates than long-term loans, borrowers could pay less interest by repaying early – saving a significant amount of money in the process.

    Furthermore, early repayment can provide borrowers with greater financial flexibility. Once the bridging loan is paid off, borrowers are free from the burden of regular loan repayments, which can enhance their cash flow and financial stability. It also eliminates the risk of default or late payment, providing borrowers with peace of mind.

    However, it may also be beneficial to consider the potential loss of any benefits or incentives associated with the bridging loan.

    Some lenders may offer certain benefits or flexible terms, such as reduced interest rates or fee waivers if borrowers adhere to the agreed-upon loan term. Early repayment can result in the forfeiture of these benefits, which should be assessed when considering early settlement.

    Is it worth clearing a bridging loan early?

    To determine whether early repayment of a bridging loan is financially viable, borrowers should carefully evaluate the potential costs and savings involved.

    1. Early repayment charges: calculate the exact costs you will incur if the loan is repaid early – this will enable you to manage your finances and better understand whether repaying early is beneficial.
    2. Interest savings: by repaying the loan ahead of schedule, you can save on the interest that would have accrued over the remaining term. Consider the amount of interest you would save and compare it to the early repayment charges to assess the overall benefit.
    3. Personal financial situation: evaluate your financial circumstances to ensure that repaying the bridging loan early does not strain your finances. Consider other obligations and potential expenses that may arise during the repayment period.

    FAQs about paying off a bridging loan early

    To learn more about paying off a bridging loan early check out our frequently asked questions below or contact us today:

    Picture of Mark Piper
    Mark Piper

    Mark is the senior advisor at One Commercial Loans and has a wealth of experience in bridging and property finance.

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