Caveat loans are also referred to as swing loans or bridging loans. These could range from one day to a three-year period. This type of loan is generally extended to small businesspersons who may not want to go in through the complete Bank loan procedure. Until the time, their loan is sanctioned; this finance comes in handy to cover up specific expenses of the business. The interest associated with caveat loans is higher as compared to the normal interest that is generally charged by the Banks.
The Caveat loan interest is higher since there is a higher risk associated with the same. Many real estate businesspersons need quick finance especially if they have to buy a property or even foreclose their property. Once the property is sold, the entire loan amount is paid in full. The main advantage is that you get it immediately without having to wait for it. In return, you will have to show that you have assets to repay that loan, in case you falter.
Many banks do not encourage caveat loans, thanks to the lack of documentation, risk and speculation associated with it. Even though these loans are given at a high interest rate, not many Banks extend these.
If you are looking out for an urgent caveat loan, it is possible, provided you have something to keep as mortgage in return. Few builders and developers go in for such loans so that their project is not stalled for want of funds. Many banks do not touch such building projects unless and until they are shown a proper guarantee. The developers can definitely proceed with the project, just that the rate of interest is very much higher. Having said that, these loans are extremely difficult to pay back considering they have to be cleared within a one-year period.
If you are keen on buying a home, do not have the money, and are waiting to sell off your old property, you could always go in for a caveat loan and buy the new property. Once your old property is sold, you could use that money and clear off the loan. This makes the entire process hassle free and you do not have to forego on your happiness of buying a new home.
If you are one of those who do not want to give up on your dream and are completely okay with paying a slight higher rate of interest, caveat loan is for you.