If you don't have the money necessary to pay a needed loan at the moment then the bridge financing method might be interesting. A situation when this can happen is when you buy a house and at the same time is in the process of selling another house. In this situation the payment on the new loan is often due before the money from the sale of the old house has arrived on your account. The important thing when you want to use this method is that you must have a good and predictable source of money that will pay off in the near future.
There are two different types of bridge financing;
Closed bridge financing means that you have a set date when the bridge financing ends and that you are sure that you will be able to pay the money at this point in time. A simple example would be if you have sold your house and there is no question that the money from the sale will arrive soon. Closed bridge financing is less risky for the lender and therefore the interest rates are lower.
The open bridge financing is the other type of bridge financing. This type of loan is riskier for the lender and the interest rate is higher because of this. The reason why open bridge financing has a higher risk is that you, when you are loaning the money don't have an exact date for when the necessary cash will arrive. The old house in this case might not have been sold just yet and therefore you don't know when you will get the money to pay back the loan. In this case the bank would like a little more for their effort.