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Emergency Cash Loan or Secured Homeowner Loan?

Both Short-Term Loans and Long-Term Loans for Bad Credit Customers

Jul 11, 2009 Asa Ghaffar

An emergency cash loan is available to individuals with a bad credit rating. Is it better to take out a secured homeowner loan or get a quick cash advance? Find out more.

Defaulting on the terms of a credit agreement will result in a bad credit rating. All missed and late payments are registered with credit reference agencies. This means that conventional unsecured loans are not available; the cost of borrowing money also increases. The need for an emergency cash loan to help pay an urgent bill, cover the cost of a family holiday or buy a new car could be achieved through a homeowner loan or even a pawnbroker, Credit Union or Payday loan. These two types of borrowing are very different so it is vital to fully understand how each one works.

How a Bad Credit Homeowner Loan Differs to an Emergency Cash Loan

A homeowner loan may be suitable for someone with a bad credit rating, but it's very different to an emergency cash loan. The Payday loan is an unsecured, quick cash advance whilst a homeowner loan is secured on the family home. This collateral means a lower interest rate and an increased borrowing term for the homeowner are possible. However, it also gives the lender greater powers in the event of the borrower defaulting.

A Homeowner Loan Takes Longer to Arrange

Unlike a quick cash advance, it can take several weeks to arrange a homeowner loan. This is due to surveyor checks, valuations and various legal formalities. A homeowner will need to have sufficient equity before they are able to borrow money so this will need to be established before proceeding. An emergency cash loan can be arranged in just 5-10 minutes, provided the eligibility criteria are met.

Spread the Cost of Borrowing with a Homeowner Loan

Secured loans also tend to be long term loans in order to spread the cost of borrowing money. A number of lenders will charge a penalty for early repayment as they accrue costs when setting-up a homeowner loan. Borrowing money from a pawnbroker tends to be for just a few weeks or months. Whilst the APR is higher on an emergency cash loan, the total interest paid on a secured loan will be higher due to its longer duration.

The APR on Emergency Cash Loans

The rate of APR charged on an emergency cash loan is considerably higher than on a secured homeowner loan. For example, a Payday loan has a rate of APR that is in excess of 1000%. A bad credit rating means that the risk of default is a lot higher, especially for unsecured loans without collateral. Short term loans are always more expensive than long term loans because there is less time for the lender to benefit from interest payments and recover set-up costs.

An emergency cash loan from a pawnbroker or Payday lender may charge a higher interest rate, but a quick cash advance is provided. A bad credit homeowner loan has more favourable terms, but it takes longer to arrange as well as providing the lender with collateral in the event of default.

Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional.

The copyright of the article Emergency Cash Loan or Secured Homeowner Loan? in Mortgages/Loans is owned by Asa Ghaffar. Permission to republish Emergency Cash Loan or Secured Homeowner Loan? in print or online must be granted by the author in writing.