The weight of debt associated with mortgages convinces us that, for the term of that loan, we will only toil to pay it off. But in reality, every year that repayments are made without a hitch, the weight of debt is lessened, and equity increases. This means that a home equity loan for bad credit management purposes can then be secured to improve the financial situation even further.
Using a loan to clear debts is nothing new, and the benefits are pretty clear. The mechanics of the deal has it that home equity is increased as each mortgage repayment is made. So, after meeting loan criteria like income levels, a significant loan can be used to clear debts like credit cards, personal loans, auto loans others.
What is more, the use of equity as security means bad credit scores can be ignored, so even large sums can be borrowed. Of course, home equity loans need to be repaid, so keeping costs down is important too. Here are a few ways to do so.
Examine the Credit Report
There is a lot of information within a credit report that can be hugely useful when applying for a home equity loan for bad credit management. Knowing where the weaknesses in any application lie provides a chance to set matters straight before submitting one.
Criteria cannot be met if certain aspects of an application do not state the right thing. A credit report will reveal what action can be taken to address this. For example, an applicant might be better off lowering the overall monthly outgoings before applying to ensure the debt-to-income ratio is adhered to, a vital part of meeting loan criteria.
Experian, Equifax or TransUnion are the three credit agencies that can supply a credit report. Be careful though, as their respective details can differ because of differences in their own calculations. Still, the information is extremely valuable when applying for a home equity loan.
Improve Your Credit Score
The whole idea of accessing your credit report is to know how to improve your credit score. When it comes to home equity loans for bad credit, there may be little attention paid to the score since equity is the security. But, the affordability of the monthly repayments still needs to be assessed.
By clearing existing debts, monthly repayments can be lowered significantly. This then leaves more income available to repay the equity loan, a huge boon when meeting loan criteria is already a challenge. Lightening the load can done either by using a consolidation loan to clear all of the existing debt, or by using smaller loans to clear individual debts.
The series of smaller loans usually means higher interest rate per $500 or $1,000 loan, and a repayment term of just 30 days, but when seeking a home equity loan both methods can be hugely effective.
Lengthen the Loan Lifetime
Meeting with the set debt-to-income ratio (40% of income) is vital if approval is to be secured. This can be difficult when it comes to home equity loans for bad credit, since the reason for bad credit can be the size of existing debt in the first place. But another way to make the loan affordable is to extend the term of the loan.
For example, if a $50,000 loan has a 10-year term, the monthly repayment would be around $550. If the same loan had a term of 20 years, then the repayment would be around $250. This extension means meeting loan criteria is all but certain.
Of course, a longer term also means a greater amount of interest is paid over the duration. But this is a compromise on a home equity loan that is worth it.
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