If you need a moderate or large sum of money right now and are looking at your financing options, you have probably started looking at home collateral loans. These loans can indeed be a good option depending on your needs and credit situation, but they can also be very dangerous.
This is your house we’re talking about, and lenders will take your house or force you to agree to very harsh terms to keep it if you’re having difficulty paying your loan back. This is a decision that could affect you and your family’s life for years to come, so you cannot take it lightly. Let’s take a look at some of the pros and cons of using your home as collateral for a loan.
Pro – Could Allow You to Get Financing with Bad Credit
If your credit situation is bad or less than stellar, then getting a collateral loan could make sense. The value of your house and the amount of equity you have in it will make more of a difference than your credit, so that may be your only way to get access to a large loan without good credit.
If you only need a small or midsize loan, however, then know that you don’t need to risk it all just to get access to financing. Some services will allow you to get loans Northern Ireland of anywhere from £100 to £10,000 even if you don’t have good credit. Look for a service that will allow you to compare unsecured loans Northern Ireland between different providers and can tell you if you have a chance of getting approved or not before you go through the application. If you fit a lender’s criteria, you could get a loan very fast that you’ll be able to pay off like any other type of loan.
Con – Your Assets are on the Line
The worst part of putting your home up as collateral is that you could lose it all for a loan that you could’ve taken out without the risk and even one missed payment could be grounds for a lender to initiate the repossession process.
Not only that, but the price they get for selling your home might not be enough to cover the amount of money you owe. In that case, you could still find yourself having to make payments well after the house is sold. That could be very demoralising and is something a lot of homeowners have had a hard time going through, so think about that before you gamble your house away.
Pro – You Could Get More Money through a Collateral Loan
Collateral loans are viewed as less risky for lending institutions since there’s a tangible asset attached to them. And homes are some of the most valuable assets around, and they retain their value pretty well too. This is why you could get access to much more money if you decide to put your house up as a guarantee for the loan.
The cost of borrowing money could be much lower too. It’s not uncommon for lenders to offer lower APRs for people who are willing to put their house as collateral, again, because of the lower perceived risk, so this could be a good reason for you to opt for this type of loan.
Con – The Application Process Could be More Complicated
That doesn’t mean that applying for a collateral loan is easier than a traditional one, however. As a matter of fact, you can expect the process to take a lot more time.
Remember, the lender has to assess the true value of your property and can’t simply take your word for it. They may have to send someone to appraise your property and will generally ask for much more information than for most other types of loans. So, be prepared for this gruelling process and make sure that you have all of your paperwork in order.
Pro – It Could Help You Rebuild Your Credit
One of the best ways for people with bad credit to rebuild it is, ironically, to borrow more. Since getting a traditional loan might be out of the question, getting a collateral loan could be a good second option. But you have to be 100% certain that you’ll be able to repay on time every month. Miss one payment and your whole plan might backfire, so be careful.
Con – Revenue Uncertainty
You might think that you’ll be able to cover your loan now, but you have no idea what could happen one, five, or ten years from now. If you suddenly lose the ability to earn money or lose your job, then you might end up losing your home as well. So, take a long hard look at your current situation and judge whether you’re confident that you’ll still be able to earn as much money or more in the future.
Putting your home up as a guarantee for a loan is a very risky move and one that could have severe consequences. So, take your time before you go through with your decision and look at whether you could use a safer alternative.