Getting Approved for a Bad Credit Home Equity Loan

Unlike other types of loans, it's much easier to be approved for a bad credit home equity loan. Of course, the borrower must be careful when accepting this type of loan since it can cause him to lose his home if he fails to make the payments. It's pertinent to always remember that an equity loan is a secured loan, and it is secured by the equity in your home.

Qualifying for the loan

To qualify for a bad credit home equity loan, the borrower must have equity in his home, and most often, the lender sets limits on how much of the equity they will lend. With some lenders, this is all that is required with the reason being if the loan goes into default, they have the home as collateral.

This can create some issues in that respect because in addition to the fact that the borrower's home is used to secure the loan, this carries a higher rate of interest than an equity loan that is given to a home owner with good credit.

Other lenders do also require the applicant to either be gainfully employed or have enough income to make the payments along with their other financial obligations.

A home equity loan is always risky, but to base it on the amount of equity alone is ludicrous to say the least. Without an income base, the borrower is being doomed to failure, so make certain the lender you use for it ollows the same criteria as he does for any secured loan.

Purpose of the loan

A bad credit home equity loan can be used for any number of reasons:

Home repairs

Home improvement

College expense

Medical expense

Consolidation

Vacation

New car

In many cases, though, a borrower who takes advantage of a bad credit home equity loan is anxious to pay off old debts in order to rebuild his credit. There are, of course, some who do use their equity for other things, but rebuilding credit seems to be the most important and commonly used purpose.

Risk factors

A home equity loan is a fully secured loan, so it's important for the borrower who obtains a bad credit home equity loan to understand he can lose his home if he defaults on the payments. The lender doesn't care that you have paid on your primary mortgage right on time for the past fifteen years; if you default on your loan, the lender of that loan is going to foreclose on your house.

Before you take out a home equity loan, consider other options and use your home's equity as a last resort. If there is no other form of collateral you can use, and you absolutely have to have the funds, enter into the contract with caution, and make absolutely certain that you can make the payments.

Bill Stone writes for Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website.