Sunday, May 20, 2012

Home Equity Loans With Bad Credit: Sidestepping The Bankruptcy Problem

Bankruptcy can create considerable problems for bad credit borrowers seeking sizable loans. But the issue of bankruptcy can be sidestepped when sufficient security is provided with the loan application. Perhaps the best security to provide is home equity, which is why securing home equity loan with bad credit is possible, even with bankruptcy in the background.

Lenders know that a poor credit score is not an accurate indication of risk, though bankruptcy is a different matter. But it is worth noting that when security is provided the level of risk drops considerably. This is what makes approval with bankruptcy possible.

There are conditions to this kind of deal, of course, but as long as a sufficiently large portion of a mortgage has been cleared, enough security is available to ensure approval for a home equity loan with relative ease.

How Home Equity Works

So, how can the value of a home be turned into hard cash? Basically, because equity relates to the value of the home not covered by the mortgage, it is a share of the home that is owned by the mortgage holder. So, securing a ,000 or ,000 home equity loan with bad credit is no great problem.

Equity grows every month, with each mortgage repayment made effectively buying back part of the home. Also, market changes can see the overall value of a property increase, and since this increase has nothing to do with the mortgage balance, it is also claimed as equity. And since equity does not depreciate over time, getting approval with bankruptcy is very likely.

The fact that equity grows every month means that the borrower always has a source of security for further loans, so everyone wins out. However, despite these advantages, there are negatives to getting a home equity loan too.

Why Ignoring Bankruptcy Is Okay

Securing a home equity loan with bad credit is a fairly straightforward deal, with the size of the loan matched by the share of equity. In reality, therefore, bankruptcy has very little to do with the loan deal, with any default quickly compensated by the security on offer.

There is a very good reason why equity provides a greater degree of security than other items. The fact is that buildings do not depreciate over time, so are always worth a significant sum. A car as collateral will be worth less after 2 or 3 years, simply because it has aged. However this is not the case with property.

The strength of this form of security is such that approval with bankruptcy poses no great risk for lenders. They can grant a ,000 loan in return for ,000 worth of equity, and feel confident that after 5 years, the equity share will still be ,000. This reliability is the reason home equity loans are enthusiastically granted by lenders.

Finding the Best Possible Deal

Getting an affordable home equity loan with bad credit, depends on finding the right lender. Approaching traditional lenders is likely to end in frustration and disappointment, but online lenders and subprime lenders are much more open to accepting these kinds of loan deals.

Searching for the best deals online is important, but thanks to comparison sites, it takes only a fraction of the time it once did. The best offers according to the preferences entered can be found and listed within seconds. And since these lender are experts in bad credit lending, getting approval with bankruptcy is more likely with them.

Of course, it is essential that the reputation of any prospective lender is checked before agreeing to any loan deal. Despite the clear benefits of a home equity loan, unscrupulous online lenders can take advantage, turning a good deal into a disaster. So, check the BBB website.

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