A homeowner loan is a kind of secured loan. This is a kind of loan where you put a valuable asset forward as a form of “collateral”. If you aren’t able to make the repayments on the loan, then the loan provider can sell that valuable asset. In the vast majority of cases, that asset is your home.
If you don’t completely own your home (for instance, if you are still paying the mortgage), then the value of your home will be based on your “home equity”. This is the amount of money that you have already spent in paying off your mortgage.
For example, if your home is worth £150,000 and you have already paid off £100,000 of your mortgage, your home equity would be £100,000. The more home equity you have, the larger the amount of money you will be able to borrow.
What is a credit score?
Your credit score is a number that is based on your previous dealings with credit. It is made up of things like the number of loans that you have taken out previously, how many payments you have made on time if you have defaulted on any loans in the past, and whether you pay your household bills on time.
Loan providers use your credit score to help them determine whether they are going to accept your loan application.
How do you get a bad credit score?
You can get a bad credit score by not paying off all of your outstanding debts on time and in full. If you have taken out loans in the past that you have not been able to pay off, you will have a lower credit score. Additionally, you can even get a low credit score by applying for too many loans in a short space of time.
What happens if you have a bad credit score?
If you have a low credit score, fewer loan providers will be willing to offer you a loan. This means that you will not have the same amount of choice as somebody with a good credit score.
Typically, people with low credit scores aren’t offered the same interest rates as people with good credit scores, meaning that you will end up paying more for the same loan. Additionally, you might not have the same terms available to you. For instance, you might only be able to take out loans up to a certain value or have to pay them back in a shorter amount of time.
Why are homeowner loans so popular for people with bad credit?
Although homeowner loan providers have to perform credit checks and affordability checks (which is whether you are earning enough money in order to be able to pay back the loan), they place less emphasis on these numbers because of the security that you have to put up for the loan.
This means that they are more likely to accept people with lower credit scores because they know that they can sell your home if you are unable to make the repayments.
Here are some other reasons why people with bad credit scores might choose a homeowner loan:
More time to pay off the loan
Homeowner loans offer the borrower more time to pay off the loan. This means that each of your repayment instalments will be more manageable and easier to budget for.
However, it is worth mentioning that you will end up paying more in interest when you extend the period for repayment. You could very easily end up spending much more than you have to by taking out a loan for longer than you need.
Lower interest rates
Secured loans typically have a much lower interest rate than unsecured loans. For this reason, they are more attractive to borrowers, regardless of their credit scores. However, they are only able to offer such low-interest rates because of the collateral (your home) that you have put up in the event that you cannot pay off the loan.
Ability to borrow more money
Secured loans offer the borrower an ability to borrow much larger sums of money. This is because of the value of your home makes up for the difference that the lender could potentially lose if you do not make your repayments.
Just as with the length of the repayment period, you will end up spending more money if you borrow more than you need because the interest payments will be larger than necessary.
What are the alternatives to a homeowner loan?
Instead of a secured loan, unsecured loans offer similar benefits, without the risk of losing your home. There are two main types of unsecured loan, which are:
Short-term loans are a form of a personal loan that is paid off within 12 months. This means that you have the ability to stretch out your repayment period so that you can budget a manageable amount for repayments each month. Each lender will have different criteria for how much you can borrow and how frequently you make the repayments (as well as what differences in these offers are for people with poor credit scores).
Payday loans work in a very similar way to short-term loans, however, they are on a much smaller scale. You can borrow less money with a payday loan, however, you must pay it back on your next payday. This is a hassle-free way of gaining access to finance.
Oyster Loan Can Help
If you’re looking to gain access to finance and you don’t want to risk losing your home, try Oyster Loan. We are a loan broker, not a loan provider. This means that we won’t be giving you the money. Instead, we will submit your application to our panel of lenders.
It starts with submitting your application to us. This is where you tell us how much you would like to borrow, how long you would like to borrow the money for, and how you intend to pay it back. Then we run a quick credit check on you. This will tell us about your credit score. Don’t worry if you don’t have a very good credit score, we work with a lot of lenders. Therefore, it increases the chances of acceptance of loan requests from people with poor credit scores.
Once we have completed the check, we send your application to our panel of lenders. They will look at your application and decide whether they would like to offer you the money. They then send back their responses to us, where we show you all the offers with complete quotes and APRs.
This entire process is completely free.
To get started with your application, Click Here.