A bridge loan is a type of short-term financing typically used by individuals or businesses to bridge the gap between the purchase of a new property and the sale of an existing one. Essentially, a bridge loan is designed to provide temporary financing until a more permanent financing solution can be secured.
Compared to traditional loans, bridge loans typically have higher interest rates and fees due to the short-term nature of the financing and the greater risk involved. They are also usually easier to obtain than traditional loans, as they are often based on the equity in the property being purchased rather than the borrower’s creditworthiness. Additionally, bridge loans are typically repaid within a few months to a year, whereas traditional loans have longer repayment terms.
Overall, bridge loans can be a useful tool for individuals or businesses who need short-term financing to bridge the gap between the purchase of a new property and the sale of an existing one. However, they should be used with caution and only when absolutely necessary, as the higher interest rates and fees can add up quickly and make the loan more expensive than a traditional loan.