Your money: gen up on bridg­ing fi­nance

Boost your knowl­edge be­fore tak­ing out these loans

YOU (South Africa) - - CONTENTS - By LETI­TIA WAT­SON Send sug­ges­tions for top­ics and re­quests for info to your­money@you.co.za. We may an­swer your ques­tions in this col­umn but won’t re­ply per­son­ally.

IF YOU’VE bought or sold prop­erty be­fore, or plan to do so, there’s a good chance you’ve come across bridg­ing fi­nance. It could come in handy when you need to cover costs for a new house but don’t have the money avail­able im­me­di­ately. But be­ware, this kind of fi­nanc­ing can also turn out to be ex­pen­sive! WHAT IT IS IN A NUT­SHELL It’s an ad­vance or loan you get on money due to be paid out to you soon. In the past only banks used to of­fer bridg­ing fi­nance but these days other fi­nanc­ing com­pa­nies also spe­cialise in this area. HOW IT WORKS Say you’re sell­ing your house and buy­ing a new one, but you have to wait for the trans­fer to be fi­nalised be­fore you get your money from the sale. In the in­terim you might need money to cover costs like the de­posit or trans­fer fees on the house you’re buy­ing.

Mean­while the fi­nancier lends you the amount needed, pro­vided you can prove you’ll soon be re­ceiv­ing the pro­ceeds from your house sale. The loan is usu­ally made avail­able within 12-48 hours.

As soon as the sale of your cur­rent house is fi­nalised and you’ve re­ceived the pro­ceeds, you then pay back the bridg­ing fi­nance.

This kind of fi­nanc­ing is also avail­able as an ad­vance, for ex­am­ple on your pen­sion or third-party claim pay­outs. You can take out a loan in an­tic­i­pa­tion of a third-party claim that’s due to pay out, for ex­am­ple. You may use the loan money as you wish. HOW MUCH ARE YOU AL­LOWED? Fi­nanciers will ad­vance you a per­cent­age – usu­ally 80% – of the amount against which you’re tak­ing out the bridg­ing fi­nance.

If you’re sell­ing your house for R1 mil­lion and your debt and costs on it add up to R800 000, the amount you’ll be paid out is R200000. So if the bridg­ing fi­nancier gives you an 80% loan on the R200 000, it will be R160 000. IT COSTS MONEY Like any other loan, this ad­vance isn’t free. You pay fees and in­ter­est on it. If your own pay­out is de­layed or the sale of your prop­erty falls through, you’ll still have a loan that needs to be paid off.

The fees can be any­thing from R250 to R1 000, de­pend­ing on the fi­nancier and loan amount. Lim­its on fees ap­ply only to fi­nanciers reg­is­tered with the Na­tional Credit Reg­u­la­tor (NCR) who have to com­ply with le­gal pre­scrip­tions.

Fees are charged on a weekly or monthly ba­sis for the pe­riod of the loan.

In­ter­est rates are high be­cause these loans are re­garded as high risk. The in­ter­est might ap­pear low, such as 0,1% a day (equal to R1 per R1 000 per day), but it can be quite ex­pen­sive – see fig­ures box.

The in­ter­est ap­pli­ca­ble must be set out in your loan con­tract.

Ni­cola Fau­rie of Bridge Flow says bridg­ing fi­nance is a com­pet­i­tive mar­ket, which means you should re­quest quo­ta­tions from sev­eral com­pa­nies be­fore you de­cide who to bor­row from.

She says many fi­nanciers will ad­just their in­ter­est or fees if the client can show them a bet­ter quo­ta­tion from a com­peti­tor.

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