Does A Bridge Loan Affect Your Credit Score? Here’s The Experts’ Take


Opting for a commercial bridge loan is a great option for those who are seeking short-term Finance. It is also true that paying off your commercial bridge loan will improve your credit rating score within the said payment period. However, many investors doubt if the other way around is through too if defaulting on commercial bridge loan payments can adversely affect one’s credit score. 

Defaulting on your loan payments, in general, can lead to a breach of the terms of the loan agreement, and it goes unsaid that it not only harms your credit score but it can also attract serious implications as property reposition or court judgments. In this blog, we will walk you over how your credit rating could be affected by bridging loans and how you can minimize your credit risk when you’re taking a bridge loan. 

How can bridge loans affect your credit score? 

Commercial bridge loans are known to offer the lifeline for those who need assistance in bridging the gap between their current financial position and that of the future. One of the most applied use cases of bridge loans is fix and flip properties, where borrowers take bridge loans to purchase a house and make some renovations before they sell it or restore it to its maximum potential. Although commercial bridge loans sound like a good deal to almost any kind of borrowers, it is still important to weigh the pros and cons of taking a bridging loan as it comes with higher than average interest rates. The costs of Administration fees can impact your credit score adversely. Jumping into getting a commercial bridge loan without understanding the consequences of non-payment is never a good idea. 

To begin with, you should understand that commercial bridge loans, just like any other form of short-term debt, might lead to a dip in your credit score for the duration of the loan. However, if you follow the terms and conditions of the agreement and are prompt in your loan repayments, you can see your credit rating going up again. Those borrowers who have had a below-average credit score in fat can use commercial bridge loans to boost their score and use it for their advantage. Essentially, commercial bridge loans are a problem only for those who default their loan repayments. 

In essence, you should keep at bay the following three things to ensure that your commercial bridge loans do not come in the way of your credit score: 

1 – Defaulting on loan payments

As commercial bridge loans are asset-backed loans, it goes unsaid that your personal assets are immediately put at risk when you default on your payment. When you default on a loan payment, your lender might legally demand payment through a country court judgment and other statutory demand letters, which can significantly impact your overall credit rating score. While some lenders provide their borrowers an extension in paying back their dues, others might choose to sue. 

2 – Not having a solid exit strategy and not keeping up with it

Most of the short-term loans come with exit strategies that reassure private lenders to provide loans to borrowers with below-average credit scores. An exit strategy is a plan in which you have to repay your commercial bridge loan and the interest and administration expenses after the end of the loan term. While these generally include selling of property, investments, or shares – it can also mean other things when the housing market becomes volatile. Not having an exit strategy or not following through with your exit strategy means you are forcing your lender to repossess your property, leaving you with a significant financial loss and a damaged credit score. 

3 – Breaching the terms and conditions of commercial bridge loan

Commercial bridge loans are unregulated, which means that private lenders can create their own terms and conditions according to their will and mutual agreement between the lender and the borrower. These include fee payments, loan origination fees, and other charges. Therefore, reading all the terms and conditions is very important before you agree to get a loan as there can be serious repercussions in a scenario where you breach the terms and conditions of a commercial bridge loan, even when it is done unknowingly. Lenders can sue you for breaching the terms, and in that case, you will suffer a financial loss and damage your credit score. 

How to minimize your credit risk when taking a commercial bridge loan? 

The best way to minimize your risk when taking a commercial bridge loan is to work with a reputable private lender who has had sufficient experience dealing with commercial bridge loans and who you can rely on. Remember that not all private lenders are willing to understand your condition when you are defaulting payments. A good majority of them tend to take the legal route, affecting your credit rating adversely. At private capital investors, we are known to provide some of the best commercial bridge loans in the market at the best rates. We ensure that our borrowers know all the terms and conditions of the loan agreements and the repercussions of not complying with the same. 

In general, it is a good practice to work with a private lender who’s not only had considerable experience in funding commercial bridge loans but is also someone who has good referrals or reviews. Reviews from the existing clients can mean that this is a private lender you can rely upon and who is not extremely impatient when it comes to an understanding for waiving off delay in loan payments a couple of times. 

However, this does not mean to say that you should default on your payments or default unnecessarily unless there is a genuine emergency. Always ensure that you read all the terms and conditions laid out in the loan agreement and do your due diligence, never to have to be liable for any extra costs or commit a breach of your loan agreements. Good private lenders ensure that their clients are talked through all the big and small details of the loan agreement in layman terms, ensuring maximum transparency and clarity. 

What to do when you can’t repay your loan dues in time? 

Even the most responsible borrowers can find themselves in an unfortunate financial condition forcing them to default on their loan payments. When you face such conditions, it is always suggested that you have an honest and open conversation about the same with your lender and explain to them the reason behind the genuine delay in no payment or failure to make payments on time. 

When you realize in advance that you will not honor the original bridging loan agreement, you must immediately communicate this to your private lender. You will stand a much better chance of retaining the collateral assets in a case of loan repayment default when you are open with your lender rather than ghosting on your lender and resorting to unscrupulous ways like not picking calls or turning non-responsive. With mutual discussion, it is possible to arrive at an amicable arrangement that works for both you and your lender. 

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