Not many people realize that when you purchase a property before disposing of your existing one, you are putting yourself in a great financial burden. There is a period of time where you are actually required to service two loans. A bridging loan can help ease the financial burden by providing a short term loan (up to 12 months) to bridge the gap between when you settle on the new home and when you dispose of the old home to discharge your old loan.

There are actually two types of bridging loans. Closed and Open. A closed bridging loan means that you have already sold you house and are just waiting for settlement and funds to clear before paying out your old loan. An open bridging loan means that you have not sold your house yet but are intending to do so within the set timeframe (up to 12 months).

Because bridging loans are essentially a sort of short term finance, the interest rates are comparatively higher than standard home loans. Of course, the best option is not have to use a bridging loan at all. To avoid this, make sure you have settled the sale of your existing house before finalizing the purchase of the new home. This is easier said than done. Having this kind of closure and defined cut off means that there is a period where you will not have a home. Even if you time the settlement on the same day, you will have to move your furniture and belongings all on the same day. This kind of timing is very uncommon and hard to juggle.

With the convenience of the internet these days, it is now much easier to find and compare bridging loans from the major banks and financial institutions. Not all Bridging Loans are made equal and as with all products, you will find that there is a large spread between interest rates charged by the lenders. Make sure you read all the fine print and fully understand what you are contracting yourself up to. When it comes to the substantial sums involved in property purchases, one mistake can be extremely costly.

Bridging loans are available to everyone – there is even bridging loans available to people with poor credit history and bad records. Shopping online can help you find the most competitive product and one that is tailored for your needs. Having a bad credit will mean that it may be slightly harder to find a willing lender and you will most likely have to pay a premium on the interest rates for the lender to take you on. This is why it is important to keep a clean record when it comes to your credit profile.

Short terms loans, because of their short time frame nature, increase risk profile, are more often than not, lent out at significantly higher interest rates than normal personal loans, car loans, and secured home loans. Because of this, short term loans should be considered an option of last resort. Sometimes, it may be a simple case of cutting down your personal spending, implementing a budget, and simplifying your extravagant lifestyle. If you absolutely need a short term loan to make ends meet and to put food on the table, you can apply for a payday loan, short term loan for students, or bridging loans.

Payday loans are micro loans lent out to people who are normally employed but need some extra cash to cover them until their next pay check. This could be because they’ve used all their money on an expensive gift for the girl or one too many beers with the boys. What ever it is, a payday loan is a popular short term loan that many people use as a once off to cover their shortfall in finances. Payday loans are usually for very small amounts ($100 to $5000) and for short durations (1 to 45 days).

Bridging Loans are called so because they help borrowers step from one loan to the next. Bridging Loans are typically used by property purchases who already have a loan for their current house but need a new loan for their new house whilst they sell their current one. The time between owning the new house and selling the previous one is the gap that is covered by the Bridging Loan. More often than not, the borrower does not have sufficient borrowing capacity to finance both loans concurrently. If not for the bridging loan, the borrower would not be able to be approved for the new loan. The Bridging Loan is a type of product that the banks offer to help their customers with their property loans.

Short Term Loans for Students are lent out to young people who are studying and need money to cover for the school fees. Typically the loan does not need to be paid off until the student finishes school and begins employment with a sufficient level of income to begin paying off the loan. Short Term Loans for Students are typically at a much lower interest rate than normal loans because students are young and they have their whole life to pay off the loan. The risk profile of the young student is significantly lower than that of an full time adult who has met financial trouble and needs a short term loan. Short Term Loans for students can be paid off earlier to save money on the interest.

Short term loans are also available to people with a bad credit history. Needless to say, the risk profile of the borrower is significantly high and most banks will not lent to people of this risk category. Specialist firms that focus of lending to ‘bad credit’ people usually charge a substantially high interest rate. This is to cover for the extra administrative costs for following up on a larger proportion of borrowers who do not pay on time or do not end up paying at all. The bad debt provisioning for these type of lending firms is much higher and they need to work on higher margins to cover for the loans that they never end up recouping.