Serviced Interest

Underwriting is enhanced for this interest repayment type. The borrower must have a reliable source of income or cash flow to cover these regular interest payments. This method is suitable for borrowers who have good disposable income or other financial resources.

Since the interest is being paid regularly, it does not accumulate or add to the principal amount of the loan. At the end of the loan term, the borrower only needs to repay the principal amount.

Servicing the interest can be more cost-effective in the long run, as it prevents interest from compounding and increasing the overall amount to be repaid.

Deducted Interest

Deducted interest is where the total interest for the entire loan term is calculated upfront and deducted from the loan amount at the outset.

When the loan is initially drawn, the lender deducts the total interest amount for the entire loan term from the principal. For example, if you take out a loan of £100,000 and the total interest for the loan term is £20,000, you would receive £80,000 upfront, but you would still owe £100,000

The borrower does not make regular interest payments during the loan term. This can be beneficial for those who do not have good disposable income or prefer not to manage monthly payments.

At the end of the bridging loan term, the borrower repays the principal amount of the loan with a refund of any months not used. Using the previous example, the borrower would repay the original £100,000 if they remained on the term for 12 months.

This method provides greater flexibility for borrowers who need to manage their cash flow carefully and might not have the means to make regular interest payments.