What happens when you don’t pay off your bridging loan on time?

What happens when you don't pay off your bridging loan on time?
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    Bridging loans can be a huge help when looking to make property transactions quickly. However, failing to pay back your bridging loan can cause issues between you and your lender and, in some instances, can lead to repossession of your property.

    If you are unable to pay off your bridging loan on time, then you could find yourself heading towards financial difficulty. Some of the issues of a missed or late payment can include:

    • Financial penalties
    • Increased interest rate
    • Damaged credit
    • Loss of equity
    • Property repossession

    At One, we have written an in-depth blog to help you understand the financial responsibility that comes with having a bridging loan. We look at the consequences of defaulting on your repayments and what you can do if you are struggling to pay back your loan.

    Keep reading for more information, or contact our experts today for advice on your bridging needs.

    What should you do if you can’t repay your bridging loan on time?

    Financial worries are never easy, which is why having a plan in place for unexpected situations can help bring more clarity.

    If you cannot repay your bridging loan on time, there are various steps you can take to lessen the impact of a missed payment and offer you some breathing space to repay the loan.

    1. Contact your lender: Reach out to the loan lenders as soon as possible. Explain your situation honestly, including any financial difficulties or delays that are causing the repayment issue.
    2. Request an extension: Ask if they can grant an extension or revise the repayment terms. Some bridging loan lenders may offer more flexibility to accommodate your situation.
    3. Refinancing: Explore the possibility of refinancing with other bridging lenders to secure better terms, like lower interest payments or longer repayment periods.
    4. Seek financial advice: Consult a financial advisor or bridging loan specialist to assess your situation and explore alternative options. They can provide valuable guidance and help you make informed decisions.
    5. Property sale: If your loan relates to a property transaction, you may wish to consider a quick sale to meet the repayment obligation and pay off the lump sum.
    6. Asset liquidation: If other assets are used as collateral, be prepared to liquidate them to cover the bridging finance.
    7. Alternative financing: Look into alternative sources of funding, such as a personal or secured loan or other lines of credit, to repay the bridging loan if absolutely necessary.
    8. Budgeting: Create a detailed budget by cutting non-essential expenses and prioritising loan repayments to better manage your finances.
    9. Legal help: If negotiations stall or become contentious, it may be best to consult a legal expert specialising in commercial property and lending to explore potential legal solutions.

    Remember, acting promptly and transparently with your bridging lender is crucial. The goal here is to find a solution that allows you to meet your financial obligation while minimising the potential consequences of not repaying your bridging loan on time.

    Consequences of defaulting on a bridging loan

    As property investors, defaulting on your bridging loan can lead to consequences out of your control. It can also hinder future borrowing on a new property, impact your credit file, and strain personal relationships.

    To put you in the best financial position, it is essential to understand exactly how much a bridging loan will cost and set out a solid plan for repaying the loan before or at the end of the term.

    Can you change your exit strategy?

    Yes, you can change your exit strategy with a commercial bridging loan, but it may come with certain conditions and considerations. Bridging loans are often used for short-term financing during property transactions, and the initial exit strategy is typically based on selling the property or securing longer-term finance.

    Changing your exit strategy might involve refinancing the loan with a traditional mortgage, selling another asset to repay the bridging loan lender, or finding alternative means to meet the loan repayment.

    However, it would be best to discuss this with your lender and possibly seek legal or financial advice, as changes to the exit strategy can affect loan terms and conditions. Be prepared for potential additional fees or adjustments in interest rates when altering your repayment plan.

    Is it best to rebridge?

    Rebridging, or taking out a new commercial mortgage or commercial bridging loan to pay off an existing one, can be an option in certain situations. However, it’s not always the best choice and should be considered a last resort.

    Whether rebridging is the right decision depends on your specific circumstances, including your financial goals, available options, and the terms of your current facility. Here are some factors to consider:

    • Cost: Rebridging can be costly, as it involves paying a new arrangement fee and valuation fees, as well as interest on both the old and new loans. You should carefully evaluate whether the cost of rebridging is justified by the benefits.
    • Exit strategy: Consider whether your exit strategy has changed and whether rebridging aligns with your new plan. If your financial situation has improved, you may be in a better position to secure traditional financing or sell the property and pay off the bridging loan early.
    • Market conditions: Assess the current property market conditions. If property values have risen significantly, then selling the property might be a more attractive option than using a bridging loan.
    • Loan terms: Review the terms and interest rates of your existing finance and compare them to new offers. Ensure that the new loan period and terms are more suitable and affordable.
    • Alternative financing: Explore alternative financing options, such as a traditional mortgage or personal loan, to see if they are more cost-effective than bridging.

    At One, we can help you weigh up the costs and benefits of rebridging to make an informed decision that aligns with your financial goals.

    Conclusion

    Paying back your bridge loan on time is crucial for avoiding financial penalties and personal consequences. With proper planning and advice from professionals who are experts in this field, you can avoid many of the situations that would prevent you from paying your bridging finance back on time and in line with your loan terms.

    Ultimately, the exit plan agreed upon at the start of your loan term should always be the goal of exiting the loan at the end unless you run into complicated obstacles along the way.

    At One, we are helping our clients secure bridging finance that works for them. We will make sure you are put in contact with the most suitable bridging loan brokers and lenders who can thoroughly assess your finances and develop an exit strategy that works for everyone involved. If you are seeking expert advice on bridging loans, please get in touch today.

    FAQs about defaulting on bridging loans

    For more information about missing your bridging loan repayments, take a look at some of our most frequently asked questions below.

    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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