Bridging loans are a form of finance that has seen a significant increase in use over recent years. The reason for this is twofold; bridging loans offer excellent benefits, and they have a wide variety of applications. While bridging loans are used heavily in the property development industry, they have proven to be effective for other, more personal uses. The ability of bridging loans to cover an unexpected shortfall is not limited to commercial activity, and has demonstrated their benefits to pay expenses that come from the blue, like inheritance tax charges. However, bridging loans are not usable in every instance, leading to many wondering if it is possible to use bridging loans for pension payouts.

In this article, we will discuss bridging loans, how they work, and whether they can be used for pension payouts. Let’s get started.

What is a bridging loan?

Bridging loans are a type of loan that falls under the umbrella of secured finance. This means that bridging loans require one or more physical assets to be used as collateral, and must be put forward as part of the loan agreement. While it does constitute additional risk on behalf of the borrower, it also affords the very benefits that make bridging finance so useful. As bridging loans require collateral, the application process is streamlined significantly. Although factors such as credit rating and income are still somewhat important, they pale in comparison to the value of assets intended for use as collateral. This makes for a quick application and a quicker release of capital, making it a very flexible form of finance.

While requiring collateral assets affords certain core benefits, it poses a higher risk level to the borrower, as we mentioned earlier. This risk isn’t particularly pronounced for borrowers in a secure financial position, as they tend to have viable exit strategies or an income capable of reliably making monthly repayments. However, the same cannot be said for borrowers with unstable finances. The lender will place a lien on assets used as collateral, which legally entitles them to seize said assets in the event the borrower fails to make repayments.

Short Term Finance

This can be disastrous for borrowers facing financial difficulty, especially if they secure the loan against important assets, like a car. Moreover, bridging loans are an inherently short-term form of finance, with the vast majority of bridging loans lasting less than 12 months. This is because bridging loans aim to “bridge” the gap between a purchase and a long-term form of finance, rather than be used as a long-term solution themselves. This short-term nature can compound the risk faced by borrowers in a tough financial position, and shouldn’t be taken lightly.

Can I use bridging loans for pension payouts?

If you’ve recently decided to retire, or had the decision forced upon you out of the blue, you might need a snappy method of finance to help you cover expenses you will incur in the immediate term. Pension payouts aren’t always prompt, and it can leave you in the lurch if an unexpected cost comes along. For this reason, you might be wondering if it is possible to use bridging loans for pension payouts.

Thankfully, the answer to this question is a resounding yes. Bridging loans specialise in providing money for exactly these unexpected or short-term purposes, and you can count on them to help you with your pension payout. In fact, there is a specific type of bridging finance, called pension bridging finance, that is tailor-made for this exact purpose. With pension bridging finance, you can borrow against your pension or other assets to receive a lump sum payout, without having to wait for your pension to be released to you as it normally would. This can help you cover any unexpected costs that befall you before your pension is released to your bank account.

How to obtain a bridging loan

Obtaining a general bridging loan is quite easy, and the same is true for obtaining a pension bridging loan. To make an application for a bridging loan for pension payouts, you will first need to find a lender that suits you. This can be done through private lending firms, or through bridging loan hubs.

Once you’ve found your lender, you’ll need to supply them with proof of your retirement and identification. Next, you’ll need to provide evidence of the value of your pension. This will be used as the collateral asset, and so must be provided to gauge how much money you will be eligible to borrow. With this information, you will be able to submit an application for a pension bridging loan. Your chosen lender will then examine the information you supplied, verifying it to ensure authenticity. Assuming everything provided is accurate, you will receive your response in short order.

Cost of a bridging loan

The cost of a bridging loan depends on how much you aim to borrow, and certain parts of your repayment agreement. That said, bridging loans do have a higher rate of interest compared to their counterparts, so you can expect to pay more for your bridging loan than you would for a mortgage, for example. In addition to higher interest rates, your lender may have certain fees as part of the loan agreement. These fees could include anything from early repayment clauses to a risk offset, so it depends heavily on your particular agreement. As such, you should carefully read your particular agreement to make sure you know what you can expect to pay, and whether you’d be stung by any hidden charges.

Wrapping up

All in all, bridging loans can be used for pension payouts quite effectively. If you apply for one, you can expect to have your application approved and the funds in your account within as little as a couple of days. With it, you’ll be able to cover any cost that attempts to blindside you after retirement or retrenchment. However, bridging loans do pose a notable risk for borrowers, as borrowers must put their assets at risk. As such, it is vital you seek the advice of a professional before taking action.