A bridge loan is a type of short-term loan that’s used to cover financial obligations in anticipation of a windfall, such as the profits of a sale or a settlement payout.
This type of interim loan is commonly used in real estate when you need to cover the costs of selling your property, but the transfer hasn’t yet gone through – so you don’t yet have access to the proceeds of the sale.
A bridge loan may also be offered as an advance against an expected payout, for example as settlement of an insurance or accident claim. Payments on these claims sometimes take months to come through, and a bridge loan may provide much-needed financial support in the interim.
Benefits of a bridge loan
Bridge loans can help you cover the upfront costs of selling your property, such as taxes, clearance certificates and rates. The proceeds of a property sale often don’t come through quickly enough to cover these costs and not everyone can afford them out of pocket.
Often, a bridge loan doesn’t require a monthly payment for the first few months. This means you can potentially take out the loan and pay it off with your proceeds before you have to start repaying the loan.
This type of loan also doesn’t saddle you with long-term debt because it’s designed so you can pay it off in full once you’ve obtained the expected funds, whether from a property sale or other payout. It’s usually long-term loans with high repayments that cause financial woes. That’s because they’re a drain on your finances every month.
Disadvantages of a bridge loan
Of course, as with any loan, interest is payable on a bridge loan. Usually, interest is repaid in the form of monthly instalments.
The interest rate will depend on the lender, the loan type and the repayment terms in the specific agreement you conclude. Total interest payable will also vary depending on how long you’re given to repay the loan. Generally, the longer the repayment period, the more interest will be due.
Bridge loans with lamna
At lamna, we offer two types of bridge loans – loans designed to cover the upfront costs involved when selling your property, and loans against settlements of claims against the Road Accident Fund (RAF).
Bridge loans on property sales
We can provide up to 75% of the expected funds from the sale of a property as bridging finance.
To apply for a bridge loan, you’ll need the following documentation:
- signed deed of sale
- signed transfer documents
- guarantees for purchase price.
Bridge loans on RAF settlements
For a bridge loan that serves as an advance on a claim settlement from the RAF, you’ll need to supply a settlement agreement or Court Order with the RAF.
At lamna, we also offer same-day asset-based loans against the value of a wide range of personal assets, from luxury watches and jewellery to vehicles. Our interest rates are competitive, and we’re fully compliant with the National Credit Act.
With a property bridge loan, you can access the proceeds of your property sale before the transfer process is completed.read more
Everything you need to know about getting a bridge loan on your property sale in South Africa.read more