The range of bad credit loans available is wide, but home and personal loans are the two main options. Which one is best depends on a number of factors relating to the borrower.
When financial misfortune makes its mark, the pressures of meeting day to day obligations and, at the same time, catching up on debts and loan repayments that have fallen behind, can be acute. More often that not, it takes its toll by affecting the credit score of the individual, making bad credit loans the only real option when seeking funding.
Of course, bad credit does not rule a person out of getting a loan. Instead, it simply affects the terms of any agreement, with the interest rates usually higher, the sum borrowed more limited and the loan period being restricted.
These are generally accepted as par for the course when applicants see loans approved despite bad credit. The real question is what sort of loan is applied for. There are two main options, with a bad credit personal loan often the choice made, but there can also be advantages with applying for a bad credit home loan.
There is a difference between the respective form of bad credit loans, but to identify which is best for a particular applicant, there are some clear factors to consider.
Considering a Personal Loan
When it comes to getting loans approved despite bad credit, this is one of the most popular loan options. The obvious advantage is that there is no collateral needed, which means it is accessible to a wider number of people.
Collateral is always welcome as far as lenders are concerned, but as a bad credit personal loan, the inability to produce an item to use as security is no big deal. What is of greater concern is that there is a way to make repayments, which ultimately means the applicant has a steady job.
Of course, this is necessary for bad credit home loans too, but with no collateral, it is the only security that the lender can turn to. And, since there is a bigger risk, the terms are not always ideal. Generally, the interest rate is higher, and the sum available is lower, with perhaps as little as $5,000 available. This is the disadvantage of taking out such a bad credit loan.
Considering a Home Loan
The great advantage in turning to the home as a way to raise needed funds, is that it is an ideal form of collateral. This basically means that getting loan approval despite bad credit is quite straight forward, though it does depend on the value of the loan applied for and the actual amount of collateral available.
The available collateral is decided based on the amount of home equity that the loan can be drawn against, which is why the loan is also referred to as a home equity loan. A bad credit home loan can be issued against this equity, which means that the loan can be much higher than a bad credit personal loan, for example.
The equity value occurs as an existing home loan, or mortgage, is being paid off and the debt falls agianst the value of the home. Meanwhile, time also tends to see property increase in value. The combination of these factors increases the amount of free equity attached to the home, against which the bad credit loan is drawn.
There are condition, of course, with most lenders only considering home equity as collateral when a minimum of 25 per cent of the original mortgage is repaid. This can mean loan approval, despite bad credit, can be secured against at least $50,000.
Unlike bad credit personal loans, which provides no collateral to be seized in compensation, this option can leave the borrower homeless if repayments are missed. With this kind of disadvantage, the pressure to make repayments can be more acute on this type of bad credit loan than any other.
Article Tags: Credit Personal Loan, Credit Loan, Credit Personal, Personal Loan, Credit Home, Home Equity