Home Equity Loans and the Impact Of Bad Credit Ratings


Home equity loans and home equity lines of credit are a great option for people looking out for loans. Irrespective of what you need the loan for, be it for educational purposes, covering medical expenses, some emergencies, house renovations, vehicle loans, debt pay-offs and so on, a home equity loan can be applied for. All that is required to be eligible for a loan is the possession of a home or an accumulated substantial equity on the property. Generally, home equity loans are fixed or adjustable rate loans that can be repaid over a predetermined period. Moreover, home equity loans have lower interest rates than credit cards and other types of personal loans and it is tax-deductible up to a limit. Although there is always a worry of a bad credit rating which may spoil the chances of getting the loan on your credit card, these things can be worked around when it comes to a home equity loan.

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All that is required in a home equity loan is the ownership of a home which can act as collateral. A bad credit rating in home equity loans does not generally act as a hindrance in these cases. Even with a bad credit rating, the mortgage can be refinanced and a home equity loan can be passed. There are numerous lending agencies that offer their services for bad credit rating cases in home equity loans. Usually, the loan terms and the interest rates are higher for people with bad credit rating in home equity loans as compared to people with good or perfect credit ratings. There could also be some compromises like extra charges, fees, prolonged terms and higher interest rates for prospects with bad credit rating in home equity loans. Hence when a lending agency offers a home equity loan to people with a bad credit history, they charge extra and demand a down payment that is higher than usual. But, with a bit of looking around, a lender willing to extend the repayment period can be found, who also offers variable or sometimes even fixed rates of interest.

Before offering any loans, a lending agency scans the reports from the three major credit bureaus, which are Equifax, Experian, and TransUnion. These credit institutions calculate the borrower's credit rating by evaluating the total debts, credit applications and the customer's history of payment. The rating given by them varies between 300 and 900 on the standard scale or parameter. A prospect with a credit rating of 600 or below is marked as having bad credit rating. Generally, people with a rating hovering somewhere in the middle are not considered as a fatal risk and offered loans from agencies.

Although, home equity loans look great to a prospective borrower, a person with a bad credit in home equity loans will be forced to pay higher rates of interest. In many cases, this high interest rate can lead to an overpayment of thousands of dollars more than a person with good credit. The only solace here could be with better planning and timely payment of dues and interests, the credit rating improves gradually and then the person can apply for a refinancing of the loan with better rates of interest and much better terms. All these depend on pre-existing conditions like the type of home equity loan, interest rate - variable or fixed-rate and the PIR (Prime Interest Rate) of the lender.

Before taking a loan from any lending institute or agency, you should have a complete understanding about the offered terms and conditions of services to avoid any hassles later on.


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