How does a home equity line of credit (HELOC) work for people with bad credit?


A home equity line of credit (HELOC) works pretty much the same for people with bad credit as well as for excellent borrowers with the exception that some people will get 3 to 4 percent above the prime, which may turn a HELOC into an expensive option.

Also, if you have bad credit, your home equity line of credit (HELOC) may work a bit different in respect to the repayment plan. Sometimes a HELOC draw period will not be followed by a repayment period but rather a balloon payment may be required.

However, even if your credit is bad, often a HELOC will have the option to repay the principal either in a balloon payment after the draw period expires, or will amortize with monthly payments spread evenly throughout the repayment period.

Even with higher rate for borrowers with bad credit a home equity line of credit (HELOC) is still cheaper than credit cards and is a very flexible loan. Due to those features, HELOCs have become a very popular loan option for many. However, some companies will offer only a half percent over the prime for borrowers with bad credit so it is worth doing your homework before you sign with a HELOC lender.

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