The Pros and Cons of Gap Loans

If you are looking for ways to finance your new home and you have considered comparing different service providers who offer private gap loans, you may want to find out more about the advantages and disadvantages associated with taking out such a loan. As much as this type of loan can save you from insolvency, it can also be a big risk if you are an inexperienced buyer. If you want to find out more about how it can help you and what red flags to look out for when you sign a gap loan agreement keep on reading this article.  

The pros of taking out a gap loan can be summarized by the following. 

  • The process from application to getting your funding approved is quick and effortless when compared to a conventional loan. 
  • If you are a business owner you don’t have to abdicate your business or turn to your partners for financing because it is a short-term financing solution. 
  • If you have cash flow problems it is a viable option for gaining access to money that can cover upfront expenses which is effective for navigating long-term payment cycles. 

The cons can be summarized below as follows.

  • The financing term is usually shorter than a conventional loan and cannot exceed anything more than 18 months. This means that the monthly payments will be a significant amount when compared to other financing solutions. Moreover, you are liable to heftier penalties and interest if your payments are late. 
  • If the payment that you are expecting to cover your gap loan falls short or is delayed for an unpredictable period, you run the risk of being stuck with a substantial expense. As a business owner, this could cause a great imbalance in your debt to income distribution resulting in a financial crisis for your business. 
  • You are more likely to pay your interest at a higher rate with lenders that charge extra fees.