A bridge loan is a short-term loan that is typically used to bridge the gap between the purchase of a new property and the sale of an existing property. It is also known as interim financing or gap financing. In contrast, a traditional loan is a long-term loan that is usually used to finance a specific purchase, such as a car or a house.
Here are some key differences between a bridge loan and a traditional loan:
- Purpose: Bridge loans are designed to provide short-term financing for a specific purpose, such as buying a new property before selling an existing one. Traditional loans, on the other hand, are typically used for a specific purchase, such as a home or a car.
- Term: Bridge loans are short-term loans that usually have a term of a few months to a year. Traditional loans are long-term loans that can have a term of several years or even decades.
- Interest rates: Bridge loans typically have higher interest rates than traditional loans, as they are riskier for lenders. Traditional loans may have fixed or variable interest rates, depending on the terms of the loan.
- Collateral: Bridge loans may require collateral, such as the property being sold or the property being purchased. Traditional loans often require collateral as well, but the type and value of the collateral may vary depending on the type of loan.
- Approval process: Bridge loans can be approved quickly, often within a few days. Traditional loans typically take longer to approve, as lenders need to verify the borrower’s income, credit score, and other financial information.