Bad Credit can sometimes be really a drawback. The inability to get finance is a mayor problem that affects those with bad credit and no credit history. Moreover, when available, financing is extremely expensive for those with credit difficulties. The interest rates for bad credit loans tend to be the highest rates on the loan market. However, there are also cheap finance options for those with bad credit.
Bad Credit Home Equity Loans
If you use the equity you've built on your home in order to get finance, you can obtain a substantial amount at a very reasonable rate regardless of your credit score or history. Equity is the difference between your home value and the debt that is currently secured with your home (mortgage). This exceeding value can secure another loan; this loan is called home equity loan or second mortgage.
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Moreover, since the money obtained from the loan will be used to improve the property securing the loan, as long as the improvements raise the value of the property, your home equity will raise too. This is the main reason why lenders do not have tough requirements for home equity loan approvals and bad credit applicants can also obtain them. By lending money, the lender is helping raise the value of the property that is guaranteeing the loan. Thus, the lender contributes to reducing the risk of the financial transaction.
Interest Rate
The interest rate on bad credit loans tends to be high. However, since bad credit home equity loans are secured loans, the risk is greatly reduced. The property guarantees repayment and in the event of default, the lender can always claim his money by the legal action of repossession.
Home equity loans have probably the lowest interest rate along with home loans. Bad credit only adds up a few percentage points to home equity loan's APR. The slight difference is due to the higher risk involved for the lender. Home equity loans that are specially meant for home improvements sometimes come with even lower interest rates, so don't forget to mention the purpose to the lender.
Loan Amount
The amount of money you can obtain from these loans depends solely on the equity you've got on your home. If you have bad credit you probably won't be able to obtain more than 90% financing of your property's value. Say for example your property is worth $100000, you won't be able to get more than $90000. However, since you probably have a mortgage on your home (otherwise you wouldn't request a home equity loan but a home loan), you have to subtract the remaining of your home loan debt to that number. If the remaining amount of your mortgage is $50000, then you'll be able to obtain up to $40000 on a home equity loan if you have bad credit.
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