Poor credit doesn’t mean you have to lose money on high rates or fees. By being informed about what are reasonable terms, you can sift through the scams and unscrupulous companies. By watching out for the following three items, you can be sure to find an affordable home equity loan, even with a bad credit history.
1. High Rates
Watch out for high rates. Just because you have poor credit, doesn’t mean you have to pay outrageous rates. You can expect to pay a couple of interest points higher on a subprime loan compared to a conventional loan.
Before you rush out to apply with a subprime lender, check with a conventional lender first. For one, your credit score may be higher than you think. And two, more and more conventional lenders are offer financing to those with adverse credit.
2. Large Fees
Another way lenders try to get you is with large upfront fees. They may post a low interest rate, but require you to pay a couple of points at closing, on top of other fees.
Trying to compare rates and fees is complicated, so the federal government requires lenders to disclose their annual percentage rate (APR), which includes both fees and rates. It makes comparison shopping a lot easier.
3. Unfavorable Terms
Also, look out for unfavorable terms, such as early payment fees. Since most people sell their home in less than seven years, you may get caught on this clause. Sometimes this can be waived for a fee.
One scam to look out for is immediate foreclosure on a loan if a payment is late or missed. You also don’t want to sign over your home’s deed for a loan either. Careful review of your loan’s terms will prevent you from these situations.
Shopping for a loan with bad credit is just like shopping with good credit. You have to be smart in comparing lenders and their terms to be sure you are getting the best financing for your situation. Taking the time to look at lenders’ sites will save you money and headaches in the future.