The bridging loan: its definition as well as advantages and disadvantages

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The bridging loan – what is it? Basically, this form of loan is almost self-explanatory, as it offers the opportunity to bridge a short-term financial bottleneck with additional liquidity through a loan. A situation that occurs primarily in the commercial sector, but also exists for private individuals. Basically, the following situation is behind the bridging loan: In the near future, a higher cash receipt is expected, but in the meantime, a mandatory purchase in the room or an invoice must be paid immediately. However, if the money balance is insufficient in both cases, a bridging loan must be used to settle the charge. Exactly this interim financing usually takes place through a bridging loan.

Advantages of a bridging loan

Advantages of a bridging loan

With such a bridging loan as bridging finance, companies as well as private individuals can lend smaller amounts of money for a short period of time at fixed credit conditions of banks and financial institutions. They do not therefore bear the risk of long-term debt through alternative loans such as the classic installment loan. The interim financing through the use of a bridging loan is therefore characterized by the fact that no long-term commitment through an additional and thus actually unnecessary loan must be received. The bridging loan is basically provided with short maturities. It follows that the monthly budget available will only be charged for a short time with interest payments on this loan. As a request to private credit is not always made for smaller bridging loans, a negative change to the private credit score may also be dropped.

Commercial use of a bridging loan as interim financing

Commercial use of a bridging loan as interim financing

In the commercial sector in particular, the bridging loan is one of the most widely used financial instruments in order to buy up stocks, raw materials, goods and external services, thus retaining business operations. However, invoices resulting from the above-mentioned uses are often paid by means of a bridging loan. If there is an unexpectedly high order intake in the room, such a loan often also serves as a pre-financing of the order, provided that no advance payment could be agreed with the client. Likewise, this will be used to finance repairs or pay and lease payments. Consequently, the bridging loan is thus first and foremost the one for the short-term maintenance of liquidity. In addition, this additional liquidity is imperatively required in the commercial sector in order to secure its own business operations.

The bridging loan in the private sector

The bridging loan in the private sector

Compared to commercial use, private bridging loans are often used to pursue other goals. Although there is also the creation of additional liquidity in the room, but often for other reasons. The so-called credit line as well as the time-limited mini-credit and short-term credit apply as classic bridging loans in the private sector. Regardless of which of the two types of credit is used, it is not uncommon for consumer goods to be purchased. Of course, the subject of bill payment as well as the completion of necessary repairs as a purpose for such a loan applies.

Typical features of a bridging loan

Typical features of a bridging loan

Bridging loans or bridging loans are usually smaller credit lines, which are provided with a fixed interest rate and usually repayment periods between 30 and 100 days (in rare cases, even longer!) Have. Minimum terms of 12 months, as with normal installment loans, do not apply to this type of bridging loan. Repayments or repayments are usually made in a one-off amount, but also installment payments are quite common practice. The properties mentioned make a bridging loan the equivalent of long-term loans.

Who are the providers of a bridging loan?

Who are the providers of a bridging loan?

The number one contact point and thus the traditional contact for a bridging loan is still the house bank. Alternatively, this form of interim financing can be realized via credit intermediation platforms or specialized credit providers. Particularly in the area of ​​short-term loans, the market in Germany has developed rapidly among mini-credit providers. In particular, private individuals find adequate solutions for temporary financial bottlenecks in these credit providers specializing in short-term liquidity assistance. Private individuals often even find significantly better offers for a bridging loan from these financial institutions than, for example, the debit credit of the house bank. A fact that is still unknown to most people. One example is the Cashper mini loan with 7.95% interest and the Targobank direct money offer with 8.95% interest. Both loan offers are thus below the nationwide average for a credit line, which currently costs around 9.91% interest. Even with these loans, terms of more than several months.

The topic costs in a bridging loan

The topic costs in a bridging loan

The cost of a bridging loan as a current account or a credit line may be quite high. The interest rates for such a loan are often slightly above the interest rates of traditional loans. However, the bridging loan can be viewed purely technically as a classic installment loan with a short maturity. Often, a bridging loan is combined with a wide range of subsidies. For example, private individuals can be a variety of areas of housing promotion and companies can be a form of economic development.

Editor’s tip for an interest-free € 1,500 bridging loan

Editor

If a short-term bottleneck is to be bridged in the private sector and more than the maximum of 600 euros available to the mini-credit providers are not sufficient, it does not necessarily take the credit facility of the house bank. Especially not if the interest rate is well above 10%. If, in addition, it is ensured in such a situation that the required credit can be repaid in full within 30 days, the Cashexpress credit facility can be used up to a maximum of 1,500 euros. This fast microcredit is applied for online within 10 minutes and can be used without purpose upon grant. The payment of the money takes place via a reference account to be indicated upon registration. The best thing about this loan offer, however, is that these maximum available 1,500 euros are completely interest-free if the loan taken is fully returned to Cashexpress within 30 days. In this case, it is a completely interest-free loan.