Can I repay a bridging loan before the end date?
When securing a bridging loan, one of the key questions borrowers often ask is whether they can repay it before its agreed-upon end date. Bridging loans serve as temporary financial solutions, providing fast access to funds for various purposes, typically to bridge the gap between the purchase of a new property and the sale of an existing one. Flexibility is a hallmark of bridging finance, and early repayment is generally possible, though there are some important factors to consider.
This blog will explain early repayment with bridging loans, its benefits, and when it may be beneficial.
Understanding bridging loans
Typically, borrowers arrange bridging loans for periods ranging from a few months to a maximum of 12–24 months. Borrowers repay the loan in full at the end of the term, including any interest and fees. These temporary loans often offer greater flexibility compared to traditional mortgage products.
This flexibility often extends to repayment terms, allowing borrowers to settle their loans early if their financial situation improves or if the funds they were waiting for become available sooner than anticipated.
Can you repay a bridging loan early?
The short answer is yes—most bridging loan agreements allow for early repayment. The terms of your loan determine whether this is beneficial.
Key considerations for early repayment
- Interest calculation:
Typically, we calculate bridging loan interest either monthly or daily. If your loan charges interest on a daily basis, repaying early can significantly reduce the total interest you owe. For example, if you planned to repay after 12 months but settle after six, you’ll only pay interest for the time the loan was active.
However, some loans use fixed or “rolled-up” interest, which calculates and includes the full amount of interest for the loan term up front. In these cases, repaying early may not reduce your overall interest costs.
- Early repayment charges:
Some lenders impose early repayment charges (ERCs) to offset the loss of interest income. Usually, the loan agreement outlines these fees, which can vary based on the lender. It’s important to check your terms and conditions carefully before deciding to repay early. - Loan type:
The type of bridging loan you’ve taken out can also affect early repayment. Open bridging loans, which have no fixed repayment date, are naturally more flexible when it comes to early settlement. Closed bridging loans, on the other hand, have a defined repayment date and may involve stricter terms regarding early repayment.
Benefits of early repayment
Settling your bridging loan ahead of schedule can offer several advantages, including:
- Reduced interest costs:
If your loan calculates interest daily or monthly, early repayment means you only pay for the time you’ve borrowed, potentially saving you thousands of pounds. - Improved financial freedom:
Repaying your loan early eliminates monthly interest payments and frees up cash flow for other purposes, reducing financial stress. - Boosted credit standing:
Successfully settling your loan early demonstrates financial responsibility and can positively impact your creditworthiness, which may help when applying for future loans or mortgages. - Peace of mind:
Clearing your loan sooner than expected removes the obligation, allowing you to focus on other financial goals without the looming presence of debt.
Things to watch out for
While the benefits are clear, there are also potential downsides to repaying your bridging loan early:
- Early repayment fees:
If your lender charges ERCs, these could offset any savings you’d make on interest. Always weigh the costs and benefits before making a decision. - Tied-up capital:
Early repayment might leave you with less liquidity, especially if you use a lump sum of cash to settle the loan. Ensure that early repayment doesn’t leave you financially vulnerable. - Rolled-up interest loans:
If your loan involves rolled-up interest, repaying early won’t save you money, as the full interest amount is agreed at the start of the loan term.
How to arrange early repayment
If you decide that early repayment is the right option for you, follow these steps:
- Review your loan agreement:
Check the terms of your loan to understand any applicable fees or restrictions for early repayment. - Contact your lender:
Inform your lender of your intention to repay early and request a final settlement figure. This amount should include any interest owed up to the repayment date and any additional charges. - Plan your repayment:
Ensure you have the necessary funds available to clear the loan in full. Typically, bridging loans do not allow partial repayment. - Request confirmation:
To prevent any misunderstandings, request written confirmation from your lender after repayment.
Early repayment of a bridging loan is often possible and can provide significant financial benefits, particularly if your loan charges interest on a daily or monthly basis. However, it’s essential to understand the terms of your loan agreement, including any early repayment charges or restrictions, before making a decision.
At UK Property Finance, we specialise in flexible and fast bridge loans tailored to your needs. Our transparent terms and expert guidance ensure you have all the information required to make the best financial decisions. Whether you’re considering early repayment or exploring bridging finance for the first time, our team is here to help.
To learn more, visit UK Property Finance or contact us today.
