A bridge loan is a short term financing to personal or corporate while they are pending their long term financing. This type of financing allows the user to meet current obligations by providing immediate cash flow, the interest rate is higher than ordinary loans. And this loan is backed by some collateral such real estate or inventory.
There are many names of this loan like swing loans, gap financing and interim financing. The loan term is generally 6 months, but it can be extended to 12 months upon request. The interest is roughly higher 2% than fixed rate (APR) products and come equally high closing costs.
As the term implies, these loans "bridge the gap" between times when financing is needed. For instance, when a company is doing a round of equity financing that is expecting to close in six months. The loan could be used to secure working capital until the round of funding goes through. For individual, when a borrower is looking to upgrade to a larger house, and haven’t yet sold their current house. The loan essentially “bridges the gap” between the time the old property is sold and the new property is purchased.
Most of peoples get use of this loan to pay for the down payment of a new home. Nevertheless, you must have a proper planning on how to pay-off this loan after obtained your long term financing. It's not worth to defer this loan cause of paying high interest and penalties fees.
For more information about various loans, please take a look at Various Loans Guide instead of Bridge Loan
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