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Are Homeowner Loans Recommended for People with Bad Credit Score?

By Maria

As your credit score falls, so does your credit borrowing capacity. But there are times in your life when you need to borrow irrespective of the price tag attached. You are bound to borrow loans at high interest rate just to stay afloat.

In many cases people seek out ways to save interest rate and opt for secured loans instead. One such loan is homeowner loan. Being a homeowner you have an out of the box advantage to borrow a second charge on your property.

However, with too many loans to manage every month, borrowing additional loan against your property may not sound a really cool idea to many. Let’s try to find out a definitive answer to one of the most frequently asked questions by online homeowner borrowers—Are homeowner loans a good idea, and that too, when you have a poor credit health?

Let’s understand the various aspects of this question and take them one by one below:


How does homeowner loan work?

Homeowner loans are second charge loans extended to homeowners against the home equity they own. To be eligible for this loan, the borrower must have a current mortgage and own a legal share of home equity. Despite the current mortgage you get to borrow up to 70 to 80 percent loan value against your equity share.

Being a secured loan you get to borrow at better interest rate despite your past credit. The loan instalments work independent of your current mortgage plan. You may or may not deal with your current lender. It is totally independent loan at a separate repayment schedule.

How to find a homeowner loan?

You can either ask your current lender or look for the one offering you better rate of interest and ease of repayment.

With the advancement of FinTech industry, it has become easier to search for loans online. You can visit a loan broker’s website and share your loan requirement. Most brokers extend free loan advice to borrowers. They are experts in searching bad credit loans and are great negotiators. You can get access to available loans without paying a single visit to any lender.

There is no obligation attached. You can compare and choose the best deal according to your credit situation. It is a good idea to opt for online loans as most of the private lenders offer tailored loans with flexible repayment plans.

What are the benefits of using homeowner loan?

Unlike bad credit loans, homeowner loans are offered at low interest rate. As you agree to pledge your home equity you are considered as a worthy borrower and are thus offered better rate of interest.

Likewise, you would not need to find a loan guarantor to get approved for homeowner loan. There are less hassles involved as compared to personal loans for bad credit.

Being a homeowner, your previous credit history would not make you ineligible for further loans as your credit application is accepted readily, you need not worry about the credit check.

What are the risks involved?

As you pledge your home equity to avail a loan you risk your property rights in case of nonpayment. Thus you must first assemble a backup plan for loan repayment. It is strictly not the risk but the outcome of not managing your debts that you should worry about.

Why people with poor credit score opt for homeowner loans?

With poor credit health, finding a loan is a hard call, forget about a low interest rate loan. Herein by using your home equity you get to leverage and stay afloat. You get a fair chance to borrow and manage your poor credit health.

This is precisely why a lot of borrowers opt for a debt consolidation loan using their home equity. They either avail a single loan to repay their multiple loans or consolidate directly those loans to pay via a single instalment homeowner loan. The purpose of both types of loans is to make your loan repayment affordable and manageable; and homeowner loans exactly help them achieve both goals.

Another common reason to opt for home owner loan is home improvement. Well, home improvements can be really pricey and using homeowner loan you can very well take care of all the expenses involved. The reason why homeowners consider home renovations is a direct one. Using basic home repairs and home extensions, a bad credit borrower can conveniently improve their credit health. Whether you consider selling your property for debt management or not, home improvement can help you enhance the value of your property and your credit worth.

Besides, there are many more reasons why homeowners take refuge to home equity loans. These loans provide a perfect traction to stay afloat despite the high debt to income ratio. There is no restriction attached to the use of loan. Thus a borrower can use the funds for multiple causes. You can win over your personal, social and financial money hassles using homeowner loans precisely and this is why a bad credit borrower finds it more feasible to apply for these loans.

Words of Caution

A debt is a debt and should always be used cautiously. Like bad credit loans, home equity loans should not be used a casual gap fill loan; instead you must apply for homeowner loans for relevant reasons. These are your last chance loans and thus you must ensure the success of loan term with full repayment on time. It is important to have a robust repayment plan and ensure timely pay offs.

Always do your homework before applying for a home equity loan. Although a broker is there to assist you find a loan, you must assess your credit report before applying for one. You must know how much surplus you have for loan repayment. Using this evaluation you can better choose a deal according to your affordability index. Such ease of repayment assures successful payments despite uncalled for financial hassles in future.

Last but not the least, you need to be confident enough to repay loan on time. It could be stressful to stay indebted for long. So, you must save as much as possible and build a reserve fund to ensure ultimate success of your homeowner loan. 

 

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