Home Equity Loan To Combat Bad Credit

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Home Equity Loan To Combat Bad Credit
All too often, when people are looking for a home equity loan, bad credit stands in their way. Surprisingly, though, a home equity loan is one of the better ways to repair bad credit. With the money you borrow through a home equity loan, bad credit can be on its way to if not stellar credit, at least better credit. For many people with bad credit, using a home equity loan as a debt consolidation loan is an excellent way to start restoring your credit.

A debt consolidation loan is a fancy way of saying 'borrow enough money from one place to pay off all your other debts'. While it may seem like a shaky financial concept, there are many circumstances where it makes a lot of sense. If you have several credit card bills with fairly high annual percentage rates, for instance, you may be in a situation where meeting just the minimum payment every month is a strain. Even worse, by paying just the minimum payment each month, you're not even putting a dent in the credit card bill balance. By taking advantage of the equity you've built into your property with a home equity loan, bad credit reports can be avoided. Here's a look at how that could work for you.

Credit cards carry notoriously high interest rates. It's not unusual for the APR on credit cards to be 15%-20%. If you've made late payments on one or more of your credit cards, you could conceivably be paying as much as 29% APR in finance charges. On a total credit balance of $10,000, that's almost $3000 a year in interest charges alone. By contrast, the annual percentage rate on a home equity loan, bad credit notwithstanding, is generally in the neighborhood of 6% to 8%. If you take out a home equity loan for the full $10,000, and use it to pay off your credit cards in full, you will:

- potentially drop your monthly payment by hundreds of dollars
- trade a 29% APR for an 8% APR
- lower your finance charges from nearly $3,000 to about $800
There are two main types of home equity loans: a revolving line of credit based on your home equity, or a fully amortized, lump-sum home equity loans. Bad credit lenders offer both types of loans, in a variety of specialty loans to help you get at the equity that you've invested in your home. If your intent is debt consolidation, then a standard home equity loan is probably a better choice. If, on the other hand, you're borrowing money to pay for a child's college education, a wedding, or the expenses on a home improvement project, a home equity line of credit may suit your needs better.

In either type of home equity loans, bad credit is no longer a red light for many lenders. Finance companies that specialize in 'sub prime' loans offer a wide variety of loan programs for homeowners with fair to bad credit at staggered rates of interest or with special repayment terms.

If you're looking at home equity loans, bad credit doesn't have to hold you back from using a time-honored strategy to get yourself out of debt and make your life easier on a month-to-month basis.

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Home Equity Loan To Combat Bad Credit
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