You don't have to have perfect credit to get a loan. If you're a homeowner – or the owner of a valuable asset – you can get a Secured Loan. Your asset will be used as collateral, and if you default on the loan, your lender can take your asset and sell it to cover the cost of the amount you borrowed. Secured Loans often appeal to folks with low credit scores, since even bad credit borrowers can usually qualify. One type of secured loan available to homeowners is a Home Equity Loan. Here's how it works:
THE HOUSE IS COLLATERAL:
You tap into your home's equity – the value of your house minus any amount you still owe on the mortgage – and receive a lump sum of cash in return. You must make monthly payments on the loan until it is paid off, or you risk forfeiting your home. Essentially, your loan is "secured" with your house.
THEY'RE OFFERED BY MOST LENDERS:
These types of loans are available from many lenders, including your bank, your current mortgage holder and online loan companies. When searching for a Home Equity Loan lender, it's always wise to shop around to find the best deal. Your current mortgage lender may not be offering the lowest interest rates or the lowest fees. Compare costs between multiple lenders, including both regular brick-and-mortar banks and online loan companies.
THEY'RE AN INEXPENSIVE LOAN:
In general, Home Equity Loans offer low interest rates. They're almost always the cheapest Secured Loan, offering lower rates than personal loans or loans that have been secured with a different type of collateral, such as a car or jewelry. Moreover, in many states the interest you pay on a Home Equity Loan is tax deductible at the end of the year, which also helps lower the cost.
A Home Equity Loan is an example of a Secured Loan that uses your house as collateral. Before you borrow, however, you should be certain that you will be able to make the minimum monthly payments, since you may forfeit your home if you default on the loan.