Bridging Loans with Bad Credit or Low Income – Guide
If you have low income or poor credit history, you might wonder whether you can still get a bridging loan. The good news is that neither your income nor your credit necessarily impacts your chances of securing a bridging loan.
There are certain circumstances when a bridging loan might not be granted, but in this guide, we’re sharing all you need to know about applying for bridging finance when you have low or no income and poor credit.
Can you get a bridging loan with a bad credit history?
Yes, you can. But it depends heavily on the lender’s criteria and their process for these situations. It’s not guaranteed that you’ll easily be able to find a lender willing to lend to you; some lenders will not accept applications from those with adverse credit.
But as bridging loans are repaid with a robust exit strategy, the state of your credit history or your income doesn’t necessarily factor into their decision to lend.
Personal Finances & Bad Credit
Lenders are not too focused on personal finances and income when it comes to granting a bridging loan to borrowers. Instead, they focus on whether you can easily repay the loan or not. If you have a property you’re selling to repay the loan; they’ll value the property to ensure there’s enough cash there to repay with interest.
Business Bridging Loans & Bad Credit
Just as people can have bad credit, businesses can, too — whether it’s due to paying invoices late or defaulting on loan repayments. Whatever the reason, you might hesitate to apply for bridging finance because of this, but it doesn’t necessarily mean that companies won’t lend to you.
If you have business assets or other collateral to offer up as security, you’re likely to find a lender willing to lend.
Bridge-To-let Loans & Bad Credit
If you’re planning on using your bridging loan to purchase a property that you want to let out, you can get a bridge-to-let agreement. This is an agreement with two products — a bridging loan and a buy-to-let mortgage — usually from the same provider.
As long as you meet the lender’s buy-to-let mortgage criteria, your bad credit shouldn’t stop you from moving forward with this agreement.
Can you get a bridging loan with low income or no income at all?
Lenders will not closely investigate your income and personal finances if you have assets you can secure the bridging loan with. If you can prove you can repay the loan with a robust exit strategy that doesn’t rely on your income, the lender won’t care about how much you make or if you make anything at all.
Applying for bridging finance is all about how secure is this agreement for the lender — will they get their money back easily? If the answer is yes, you can consider applying for a bridging loan.
Does a poor credit history or low-income status make it harder to get a bridging loan?
Low income and bad credit history make it harder for you to get a loan in that only some lenders might consider your application. Not every lender will consider an applicant with bad credit or low income.
The lenders ultimately need the confidence to know you are capable of repaying the loan amount and interest in full. So if your poor credit or low income are factors in your repayment plan, then it’s likely that you won’t be able to secure a bridging loan — for example, if you’re exit strategy depended on a remortgage and you have no or low income, the answer might be no.
Is it possible to get a bridging loan without a credit check prior?
Unfortunately not. All lenders will complete a credit check for any form of finance, just to see what they’re working with. Although you can secure bridging finance without a good credit history, you are likely to secure better interest rates and have your pick of many lenders if you do have good credit.
What are the risks involved when taking out bridge finance with a bad credit rating or low income?
As with all financing agreements, there are risks associated with bridging finance, particularly if you have low income or a poor credit rating. This is because bridging finance is expensive, and you need to make sure you’re confident in your exit strategy before agreeing to the lender’s terms and conditions.
Interest is calculated on a monthly basis, so the longer you take to repay the loan, the more expensive it’s going to cost. And you need to make sure you can afford this.
What should I consider before I commit to the loan to avoid these risks?
The best way to avoid the risks outlined above is to carefully consider whether bridging finance is realistically affordable for you and whether it’s the best finance product for your current circumstances.
When it comes to being able to reassure lenders that you’re not a risk, it helps if you have:
- Experience in property
- A healthy deposit
- An asset to secure the loan with (either the property you’re purchasing or another)
- A comprehensive business plan
What impacts will a bridging loan have on my credit score if I meet payment terms?
If you repay the loan in line with your bridging agreement, this can help you build good credit. If you’re seen to make consistent repayments, eventually repaying the loan in full, this will reflect positively on your credit score and your reputation to other lenders.
And what impacts will it have on my credit score if I miss or fail the payment terms?
Just as with any loan, if you default on your repayments, there’s a chance it will negatively impact your credit score, as all missed payments are recorded on your credit report. Failure to repay the loan could also mean you lose possession of the asset you secured the bridging loan with in the first place.
To sum up
If you have bad credit, it’s easy to think you shouldn’t bother applying for a bridging loan because you’ll get turned down. But as you can see from this guide, that’s not the case.
Here are our main takeaways from this guide:
- Each lender’s criteria differ
- If you have assets to secure the loan, you’re in a good position
- Compare lenders to find the best deal
- Never stop working to improve your credit score