Loans for People with Less Than Good Credit Scores
By Jack Tanner
Loans for people with less than good credit scores are possible to get, but risky. To protect yourself, here’s what you need to know.
If you have a bad credit history or your income is lower than average, you’re what’s known as a “subprime” borrower.
Lenders will still give you credit, especially if you’re willing to use your most valuable asset - your home - as collateral.
But there are generally some serious strings attached.
So before you jump into an enticing home equity loan with adjustable rate mortgages, interest only payments and 125% LTV financing, follow the advice of the Federal Reserve Board: “Borrowers Beware!”
Twenty-five years ago, loans for people with less than good credit scores were virtually unknown. Bankers wouldn’t even talk to them.
But that’s all changed. Lenders now welcome subprime borrowers with wide open arms. Borrowing money in the last ten years is a whole new ball game and anyone can play.
The once conservative banking industry is now so hungry that just about anyone can borrow money. Since the mid ’90s loans to subprime borrowers increased by an astonishing 400%.
Subprime mortgages are now a multi-billion dollar business. They went from less than 5% in 1994 to over 20% of the market in 2005.
What’s this mean to you? If you have bad credit, it means you can find lenders willing to take a risk on you. However, it will probably cost you a bundle for the privilege of borrowing.
The ads are everywhere. “Buy a new house. Refinance your present home. Bad credit, no problem!” What they don’t tell you is that you’re going to end up paying thousands of dollars more in interest.
Besides paying higher fees and interest to get your mortgage, there’s another important fact you need to know.
Subprime mortgages have lousy track records. More than 16% are delinquent and another 4% are in foreclosure. These are much higher statistics than for non-subprime mortgages.
This doesn’t mean you shouldn’t take out a home equity loan. It only means you should be careful before jumping in over your head.
Before applying for a loan clean up your credit reports.
Correct all mistakes and bring your payments up to date. You can also request creditors to remove late payments from your file. If you’re in good standing, they’ll usually do it.
And, if you ask, they might even increase your credit limit, which improves your credit score. It’s certainly worth a try. Even a small increase in your score can save you thousands of dollars in interest.
Then, do your homework before moving ahead.
Check out all options. Go over the small print with a fine tooth comb. And, by all means, watch out for those unscrupulous lenders that specialize in loans for people with less than good credit scores.
They prey on subprime borrowers, promising anything just to get their hands on your money. So watch your wallet and protect your home.
Jack Tanner blogs about his experiences with home equity loans and rates at http://www.HomeEquityLoansZone.com. Stop by and learn all the tips and tricks he’s used over the years to take advantage of home equity loans.
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