How to Know if You Need a Bridge Loan

Bridge loans offer consumers the chance to cover gaps between mortgages or large loans, often with the promise of receiving another loan. Bridge loans do just that: bridge consumers between loans or payments. Generally high-interest, these loans provide a purely temporary source of income. Although similar to hard money loans, which are backed by real estate or tangible collateral, these are much shorter in term. Consumers must carefully consider these loans.

1. First: When can you pay a bridge loan back?

   Pay bridge loans back as quickly as possible, sometimes within a few weeks or months. With such a high rate of interest, having a loan any longer than this can drive up the cost in the end.

2. Second: Why should you pay such a high interest rate?

   As stated, usually a bridge loan covers a gap between larger loans or sales, but because essentially no collateral exists, the loan company must protect its interests. Giving out a large loan with no collateral presents a huge risk. Sometimes the loan company also gives options instead of the high interest, like a percentage in the company or other perks. These may seem appealing but weight them carefully.

3. Third: Do you have to take out a bridge loan?

   This all depends on you, but with such a high rate of interest, if you can avoid a bridge loan, do it. In today's world of volatile consumer finance, the fewer risks, the better. A hard money loan is probably preferential to a bridge loan, in that tangible collateral reflects a lower interest rate.