When it comes to borrowing money for property purchases and investments, the two options often considered are bridging loans and secured loans.
While both loan types are secured against property, they serve different purposes and come with their own terms, costs and risks.
In this guide, we explain how each type of loan works, their benefits and drawbacks, and how to decide which is best for you.
What Is A Bridging Loan?
A bridging loan is a short-term loan designed to “bridge the gap” when waiting for funds to become available.
These loans are often used for buying property fast, renovations or to purchase a property whilst waiting for another to sell.
What Are Bridging Loans Used For?
Bridging loans can be used for a number of things, including:
- Buying a new house before selling the current one
- Property development or renovation projects
- Buying property at an auction (where quick financing is needed), also known as auction finance
- Short-term business funding
- Paying tax bills quickly
Types of Bridging Loans
There are two main types of bridging loans:
1. Open Bridging Loans
- No fixed repayment date
- Generally repaid within 12 months
- Greater flexibility but often come with higher interest rates
2. Closed Bridging Loans
- Fixed repayment date, based on a known date for cash inflow (e.g. if a house sells)
- Usually cheaper than open bridging loans due to lower risk
Regardless of which type you choose, bridging lenders will always want to see an exit strategy, meaning you must show how you plan to repay the loan (e.g., selling or refinancing).
Security and Charges on Bridging Loans
When it comes to bridging, lenders place a charge on the borrower’s property to secure the loan. This means that they are covered financially if the borrower defaults. These charges are split into:
- First Charge Bridging Loan – If the property has no mortgage, the lender has the first right to repayment.
- Second Charge Bridging Loan – If the property already has a mortgage, the bridging loan is repaid after the primary lender (mortgage company), making it riskier and more expensive.
Because of this, many bridging lenders will often only deal with first-charge bridging loans.
Cost of Bridging Loans
Bridging loans tend to be more expensive than other types of loans due to their short-term nature.
Interest is usually charged monthly rather than annually.
An example of costs would be:
- Interest rates: 0.5% – 2% per month
- Additional fees:
- Arrangement fees (typically 1-2% of the loan amount)
- Exit fees (if repaid early)
- Legal, valuation, and administration fees
What is a Secured Loan?
A secured loan is a long-term borrowing option where the loan is secured against an asset, usually a property. These loans provide access to larger amounts at lower interest rates than unsecured loans because the lender has collateral to cover their backs.
Common Uses of Secured Loans
- Home improvements and renovations
- Property investments
- Debt
- Business expansion
Key Features of Secured Loans
- Loan Term: Normally between 5 to 30 years (compared to bridging loans’ 3 to 18 months)
- Interest Rates: Lower than bridging loans, as they are designed for long-term repayment
- Collateral Focus: Lenders assess the value of the asset and the borrower’s ability to repay, rather than focusing on a short-term exit plan
Key Differences: Bridging Loans vs. Secured Loans
| Feature | Bridging Loan | Secured Loan |
|---|---|---|
| Purpose | Short-term funding (e.g., buying before selling) | Long-term borrowing (e.g., renovations, business expansion) |
| Loan Term | 3 to 18 months | 5 to 30 years |
| Time to Obtain | Fast (often within 48 hours) | Slower (due to underwriting and valuation checks) |
| Interest Rate | Higher (0.5% – 2% per month) | Lower (typically 4% – 10% per year) |
| Typical Loan Amount | £250,000 – £25M | Varies based on home equity |
| Repayment Structure | Lump sum or rolled-up interest | Monthly repayments |
| Security Type | Property or other high-value assets | Primarily property |
| Exit Strategy | Required (e.g., property sale or refinancing) | No exit strategy required (paid over time) |
Which Loan Is Right for You?
When deciding between the two, it’s worth thinking about what you are using the money for.
Choose A Bridging Loan if:
- You need quick access to funding (e.g., buying at an auction or bridging a sale)
- You have a clear exit strategy (e.g., funds from a future sale)
- You are comfortable with higher interest rates for short-term borrowing
Choose a Secured Loan if:
- You need longer-term borrowing with lower monthly repayments
- You want to finance home improvements, business expansion or debt consolidation
- You prefer a lower interest rate and predictable payments
How To Find the Best Loan for You
1. Be Clear On Your Needs
- How much do you need to borrow?
- How long do you need the loan for?
- Do you have a repayment strategy in place?
2. Know Your Financial Situation
Lenders will want to know:
- Your property’s value and existing mortgage balance
- Your monthly income and outgoings
- Your credit history
3. Compare Your Options
- Look at multiple lenders and loan types
- Consider using a loan broker to access exclusive deals
4. Read the Fine Print
- Check for hidden fees, including early repayment charges
- Understand the interest structure (monthly vs. annual rates)
Choosing The Right Loan
Both bridging loans and secured loans have their place in property finance and investment.
Choosing the right one depends on whether you need short-term or long-term financing, your interest rate tolerance, and your repayment plan.
- Need fast, short-term funding? → Bridging Loan
- Looking for a lower-cost, long-term solution? → Secured Loan
By understanding the differences, you can make the right decision that best supports your goals.
Need More Help?
If you’re looking for a quick loan between £250,000 – £2M, get in touch with the Blue Square Capital team at [email protected].
