Bad Credit Loans

If you have a bad credit history the bottom line is you are going to have many problems obtaining a loan of any sort, let alone a home loan. Before the global financial crisis when there was plenty of credit available around the world, just about anyone could obtain a home loan irrespective of their credit history.

One of the hallmarks of home loans granted to people with bad credit was that they were more expensive than traditional home loans and the rate charged was geared towards the individual. In essence, the worse the borrower's credit history, the higher the rate charged.

Many analysts blame these types of loans for the global financial crisis, and whilst this may be partly true it seems that the financial market has come to its senses and only now lends money to people who can prove their credit worthiness.

There are still some lenders however who are happy to advance funds to people with credit history problems, but they are stringently controlled and lenders are reluctant to expose themselves to excessive risk.

In order to qualify for a home loan with a bad credit history a borrower has to satisfy the following conditions.

Must be able to explain how the bad credit history came about.

Must be able to afford the loan and demonstrate enough income to service the proposed debt.

Must have a steady employment history, preferably with the same employer or within the same industry for at least two years.

Overall, applicants must demonstrate that these circumstances have now changed and they are able to handle debt responsibly.

In other words borrowers must be able to paint a picture which shows that past problems have been dealt with and it is now likely they will be able to meet the loan requirements without any financial hardship.

What are the hallmarks of a bad credit home loan?

The interest rate charged will be substantially higher, and will generally be 2% to 3% higher than other banks standard variable rates.

Application fees are much higher and are usually calculated as a percentage of the loan sought. Typically the fee will be around 1%, plus legal fees and document preparation fees of around $1000 total.

Early repayment fees will apply so that if you wish to pay out these high interest rate loans within the first three years you will have to pay an early discharge fee of around 3% of the original loan amount.

The maximum loan to value ratio will be much lower, usually a maximum of 85% of the property's value.

Monthly account keeping fees generally apply. Typically around $9 per month.

Lenders mortgage insurance does not apply.

There is generally no limit on the number of debts that can be refinanced through these loans.

What this means is that there is light at the end of the tunnel for people who have had trouble with credit in the past. Bad credit lenders will even consider people who are struggling with their current commitments and can approve loans if borrowers can demonstrate they will benefit from a packaged deal which results in a better cash flow position for them despite paying a high rate of interest.

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