When you need short-term finance, there are two main options: bridging loans and personal loans. But which one is best for you?
In this guide, we’ll compare bridging loans vs. personal loans, explaining their key differences, benefits, and risks. By the end, you’ll know exactly which option is right for you.
What Is A Bridging Loan?
A bridging loan is a short-term, secured loan used to “bridge” a financial gap, usually when buying property.
It provides the borrower with fast funding, usually for 1 to 24 months, and is secured against a property or other high-value asset.
Bridging loans are particularly beneficial for transactions which are on a quick timeframe.
Bridging loans are usually used for:
- Buying a property before selling an existing one (breaking a property chain).
- Purchasing a property at auction, otherwise known as ‘auction finance‘ where completion and the full funds are required within 28 days.
- Renovation or development of an uninhabitable property (e.g., no kitchen or bathroom) that is not eligible for a traditional mortgage.
- Short-term business funding when waiting for long-term finance.
In exchange for this quick funding, borrowers do have to pay slightly inflated interest rates.
Bridging Loan Interest
Bridging loans typically have monthly interest rates rather than annual ones due to the fact that many of the loan terms do not span more than 1.5 years.
If you are opting for an unregulated bridging loan, the lender is able to adapt this interest rate on a case-by-case basis. In order to secure the best rate possible, it’s important to explain your exit strategy (how you plan to repay it) as well as reduce any perception of risk to the lender.
Unlike personal loans, interest on bridging finance can often be “rolled up”, meaning you pay it at the end rather than monthly in some cases.
What Is A Personal Loan?
A personal loan is an unsecured loan that provides a lump sum, usually repaid over 1 to 7 years in fixed monthly instalments.
Personal loans are often used for:
- Smaller purchases, such as home improvements or car purchases.
- Debt consolidation to combine multiple debts into one loan.
- Emergency expenses like medical bills or repairs.
Example Personal Loan Interest Calculation
Personal loans charge annual interest (APR), which is spread across the loan term.
- Loan amount: £20,000
- APR: 6%
- Loan term: 5 years
- Monthly repayment: £386
- Total repayment: £23,160 (including £3,160 interest)
Personal loans are cheaper than bridging loans, but approval takes longer and depends on your credit score.
If you do have a bad credit score, you might be given higher interest rates, due to the perception that you are a high risk borrower.
Key Differences Between Bridging Loans and Personal Loans
| Feature | Bridging Loan | Personal Loan |
|---|---|---|
| Secured/Unsecured | Secured against property | Unsecured |
| Speed of approval | 3–14 days | 1–4 weeks |
| Loan term | 1–15 months | 1–7 years |
| Typical uses | Property purchases, renovations, auction finance | Home improvements, debt consolidation |
| Borrowing amount | £250,000 – £10 million+ | £1,000 – £50,000 |
| Interest rate | Monthly (0.5%–1.5%) | Annual (5%–15% APR) |
| Credit score importance | Not important | Important |
When Should You Choose a Bridging Loan?
A bridging loan is best if:
- You need fast property finance (e.g., buying at auction).
- You have equity in a property to secure the loan.
- You have a clear exit strategy (selling the property or refinancing).
- You are a property investor or developer looking for short-term funding.
Example: Buying A House Before Selling Your Old One
Emily finds her dream home but hasn’t yet sold her current house. She secures a £300,000 bridging loan for 6 months at 0.8% per month, allowing her to buy immediately.
Once her old house sells, she repays the loan in full.
Total cost:
- Interest: £300,000 x 0.8% x 6 months = £14,400
- Total repayment: £314,400
Without a bridging loan, she would have missed out on the property.
When Should You Choose A Personal Loan?
A personal loan is better if:
- You need a smaller loan (under £50,000).
- You have a good credit score and stable income.
- You want fixed monthly repayments.
- You’re financing a non-property expense (e.g., a car purchase).
Example: Home Improvements
Jake wants to renovate his kitchen and takes out a £15,000 personal loan at 6% APR over 5 years.
Monthly repayment: £290
Total cost: £17,400 (£2,400 in interest)
This is cheaper than a bridging loan, making it the better choice for non-urgent renovations.
Pros and Cons of Bridging Loans vs. Personal Loans
Pros of Bridging Loans
✔ Fast access to finance (as quick as 3 days).
✔ No monthly repayments if interest is rolled up.
✔ Flexible loan terms from 1–24 months.
✔ Available even with poor credit (based on property value).
Cons of Bridging Loans
✖ Higher interest rates than personal loans.
✖ Secured against property, so repossession is a risk.
✖ Exit strategy required to repay the loan.
Pros of Personal Loans
✔ Lower interest rates than bridging loans.
✔ Fixed monthly repayments for budgeting.
✔ Unsecured, so no risk to property.
Cons of Personal Loans
✖ Slower approval process (weeks rather than days).
✖ Credit score dependent – poor credit means higher rates or rejection.
✖ Lower borrowing limits than bridging loans.
Final Verdict: Which Loan Is Right for You?
Choose a Bridging Loan If:
- You’re buying or refinancing a property.
- You need fast, short-term finance.
- You have a property to secure the loan against.
- You have a clear exit strategy (e.g., selling or refinancing).
Choose a Personal Loan If:
- You need less than £50,000 for general expenses.
- You want fixed monthly repayments.
- You have good credit and can get a low interest rate.
- You don’t have a property to secure against.
For property-related short-term borrowing, a bridging loan is the better choice. However, if you need a smaller loan for general expenses, a personal loan is often cheaper and easier.
If you are still unsure, it’s always worth speaking to a professional to find out more about what each loan entails and which one is best for you.
How To Apply For A Bridging Loan
Applying for a bridging loan is quick and easy, you just need to have everything put together.
Follow these steps:
- Get a loan estimate – Use a bridging loan calculator to see how much you could borrow.
- Prepare your documents – Property details, valuation, exit strategy.
- Choose a bridging lender – Compare interest rates and terms.
- Apply and get approval – Some lenders approve in as little as 3 days.
- Receive funds – Once approved, funds are transferred, and you can proceed with your purchase.
Need help securing a fast bridging loan? At Blue Square Capital you can borrow between £250,000 – £2,000,000 in as little as 2 weeks. Get in touch with the team at [email protected] to find out more.
