Home equity line of credit (HELOC)
Do I have options to get a home equity line of credit when I have bad credit? Many people ask this question. Just remember that putting your home on the line comes with its own risks. Even so, a HELOC is one of the best loan options for persons with poor credit.If you have a poor credit score, you might think that getting a loan is impossible. Have you been denied credit in the past? You might still be afraid to apply for any loan.
However, you need not worry because you have more borrowing options than you think.
If you are struggling to find the right loan for your business, you should try the following options:
It is possible to secure a tax-deductible LOC with a reasonable rate of interest without any restrictions on how to use the money. To qualify for this kind of loan, you should have a loan-to-value ratio of 80%, which means that your equity stake in your home should be at least 20%. If you have not paid off a large amount of your mortgage, the value of your home might have increased since Great Recession.
Your lender also needs to see a strong employment history as well as a low debt-to-income ratio. If you can qualify for this type of loan, be sure to compare lenders for the lowest interest possible. As with many bad credit loans, HELOC interest rates are very high.
Pros of applying for HELOC include:
-You are likely to pay lower interest rates than with credit cards
-You have flexibility when it comes to fund use
-Adjustable-rate HELOCs have lower interest rates
Cons of using HELOCS are:
-If you do not start using the LOC immediately, you might face fees
-You must pay closing costs
-Your home needs to serve as collateral
-The bank could cancel your line of credit
Credit union loans
Getting a loan from a credit union is much easier than getting one from a bank because credit unions have relaxed credit standards. Joining a credit union is quite easy: some only require you to reside in a particular area. Because credit unions are not for-profit, they usually offer financial services and loans more cheaply.
Moreover, the customer service offered by credit unions is better than most banks.
Here are the pros of borrowing from credit unions:
-They have more relaxed lending standards than traditional banks
-They offer unsecured loans to persons with bad credit
-They impose fewer penalties and fees than traditional banks
Cons of credit union loans include:
-Unsecured personal loans have shorter loan durations
-Your loan type and credit score limit your borrowing power
You can ask a friend or family member with good credit to cosign your loan if you want to get the best loan term and better rates of interest. Unfortunately, when you have poor credit, getting a cosigner might not be easy. You might have to prove to someone close to you that you can be trusted despite your poor credit history.
Moreover, if you default on your payments, your cosigner will be responsible for your debt, which will affect his/her credit score as well as yours.
Here are the pros of a cosigned loan:
-Lower rates of interest than
-More flexible terms are possible
-Terms and qualifications are not wholly dependent on your credit score
Cons of cosigned loans:
-It might be hard to get a cosigner
-You risk ruining a good relationship