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Weighing Equity Loans with Bad Credits

By Charles Hopkins Published 10/26/2007 | Loans
There are all sorts of consumer credits, and an equity loan is one of the favorite kinds of credits.  Most people would apply for home equity loans to enable them to get huge lump sum of money at a rate that they can afford.  Equity loans, depending on what property is put as collateral and how much the property costs, would have varied interest rates.  Some would have variable interest and others fixed rates.

When Should You Apply for Equity Loans?

It would be a good idea to apply for these kinds of loans when:

1.    You are saddled with onerous and usurious debts like car loans.  You would be able to pay off these multiple debts with the cash you got from your equity loan and end up with just one debt.
2.    When you are burdened with an existing mortgage, especially with a burdensome adjustable interest rate; and you are not moving from your house anytime soon.  That is, if you would be applying for a home equity loan.
3.    When your house have enough equity that you can afford to apply for a loan without having to pay for private mortgage insurance.
4.    When you have multiple debts that you would want to consolidate.

What if You have Bad Credit Ratings?

Theres definitely good news for you.  Having a bad credit rating should not deter you from applying for an equity loan.  As long as you have a property with equity, you can certainly qualify for a loan.  You will be able to find numerous lenders who would be wiling to help you out and extend you a credit.

However, you should understand that putting up your loan as collateral would put it at risk in case you defaulted in your payments.  The bank or your lender could subject your property to foreclosure.  So, you should make sure that you are financially capable of paying your loan.

You should also note that you cannot get a larger loan, although you could certainly apply for an equity loan.  Having a bad credit rating limits your chances of getting a large loan.  If you could, perhaps, it would be best to wait until you have improved your credit ratings before you apply for an equity loan.

Equity Loans and Interests

Given your bad credit ratings, you should take into consideration the interest rate of your equity loan.  Interest rates could either be fixed or adjustable.  Take note that by applying for an equity loan, you put your property at risk.  So, it is best that you take on the kind of interest for your loan that you think you can afford.  Timing is everything.  So, always check the market rates and apply for an equity loan when market rates are at their lowest.

What are the Benefits of Equity Loans?

With equity loans, you could get as much as 125% loan depending on your equity.  These are what you called over-equity loans.  Usually, you wouldnt have to pay processing fees and other fees as these are usually included in your loans.  Another benefit of equity loans is that you could claim your interest as deductions from taxes.