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What Is A Gap Loan?

A gap loan is similar to bridging finance and is when a loan gets utilised to fill the gap between two situations. Gap finance is often used to acquire a property while waiting for the sale of another.

How Does A Gap Loan Work?

 A gap loan works to provide a financial solution between buying and selling a property situation. 

In the case of selling and purchasing a property, the gap loan can be used to secure the property they want to buy, and then the money from the sale of the former property can be used to pay the gap loan back. 

So, you will go to a lender to get a gap loan and use it to financially help you and pay the loan back within a short amount of time. 

As well as this, you will need security and an exit strategy to secure the gap loan in the first place.

They have high-interest rates as they have a shorter time frame and can leave the lender at high risk. 

Advantages Of A Gap Loan

Quick and Easy-Gap loans are easy and straightforward to get if you have a plan. 

As well as this, you can get access to large amounts of funds very quickly. 

It’s an excellent option for those needing a quick and short financial solution to help them out with something.

  • Used For Various Reasons-

They can be used for various reasons and aren’t limited as to who can get one. 

As long as you qualify for one and pass the application process, the loan can be used to help out with many different things. 

However, one of the primary uses for a gap loan is for properties and property development.

  • Access To Large Amounts Of Money-

You can quickly get access to large amounts of money very quickly, as long as you pass the application. 

You can use the funds straight away for the agreed reason with the lender.

Disadvantages Of A Gap Loan

  • High-Interest Rates-

Gap loans are known to have high-interest rates, so this can add up over the loan term and result in paying a lot more money. 

It is something to consider as you must repay the interest on top of the loan.

  • Additional Fees-

Some lenders may charge additional fees when giving a gap loan, some are standard, but some aren’t, so make sure to look out for this when looking at lenders.

  • Security and Exit Strategy-

You must have security that can be used against the gap loan and an exit strategy for paying the loan back. Without these, you won’t be approved for the loan.

How To Apply For A Gap Loan

Just like any loan, you will need to find a lender and go through the application process. 

The process for this is easy and straight forward. And as well as this, you will have a consultation with the lender to discuss the loan. 

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