In today’s economic climate and current real estate market, it is becoming more and more common to hear inquiries about home equity loan options. A bad credit home equity loan can actually be used to help a person start rebuilding his credit. The money taken out of home equity gives someone the chance to pay off the debts and catch up on the late fees that adversely affect a credit score. If payments on the loan itself are made on time, a person’s overall credit rating can greatly improve.
“But what about the high rates?”
People with bad credit will most likely receive a loan with a high APR. However, if the loan is stretched out over 30 years, monthly payments can remain relatively low. Also, a bad credit home equity loan will often be for a lower percentage of the house’s value than that of a standard home equity loan. While someone with excellent credit might receive the maximum of 80 percent, 90 percent, or 100 percent (limits vary between states), a person with bad credit might have a limit of 40 percent or 50 percent.
Applying for Bad Credit Home Equity Loans
A person who knows he has bad credit should also know that his loan options will most likely be limited. Lenders are usually unwilling to take risks on people who have struggled to make payments in the past. This doesn’t mean that some lenders won’t approve these people for loans, but it does mean that the loan will be one that puts all of the risk in the hands of the borrower. High interest rates guarantee that more money will come back to the lender. This is especially true if the loan has a term of 30 years. Also, if a person does default on the loan, the lender usually reserves the right to sell that person’s home in order to make up for the unpaid debt.
Assess Your Options, Know Your Resources
If you find yourself in a situation that may benefit from a bad credit home equity loan, then you need to do two things. It is important to know exactly how you will be handling payments on a different type of loan–how you will allocate your money and alter your lifestyle will determine your viability. You must also carefully assess your resources and find a broker or lender that you can trust–you will be working with this resource for many years, after all.