Bad Credit Home Equity Loans
No matter how much we plan, sometimes life throws us a few things we were not expecting. The loss of a job, health problems or divorce can make it difficult to meet our financial obligations. Missing some payments can impact your credit rating and mark you as a higher financial risk.
But, just because your credit rating isn’t sterling, doesn’t mean you can’t get a loan. It just means that you’ll pay extra. Bad credit indicates to a lending institution that you’re more likely to default on a loan than someone with a good credit rating. When they lend you money, they take on a higher risk. They cover that risk by charging more.
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The bad credit or sub-prime market can be a perilous place if you aren’t careful. Don’t assume that all lenders are equal. There are big variations in the costs and terms of home equity loans. Take the time to understand all the details of your loan before you sign. A home equity loan is secured by your home. If you default on payments you could lose your home.
There are a variety of charges and fees associated with any loan. Make sure that you get a list of all these fees, along with the interest rate. Home equity loans can have either variable or fixed interest rates. If the rates are variable ask about how much it can fluctuate in a given year. Also, find out what the maximum rate can be charged on the loan.
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Often variable rate loans will have a balloon payment. You’ll have a low interest rate for a number of years and then a large payment will be due.
Sometimes home equity loans are structured as lines of credit. This allows for a great deal of flexibility but it can also mean monthly payments that vary from month to month.
Home equity loans can be a way to consolidate high interest credit card debt into a lower rate loan. This makes sense if you’ve addressed the problem that caused the credit card debt in the first place. If the problems wasn’t caused by a one-time problem but is part of a pattern of overspending, a home equity loan won’t solve your problems. It will only put off an inevitable financial crash.
Professional debt counselors can help you understand all your options and make recommendations on changing spending habits. A reputable advisor won’t have any financial stake in your decision.
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