While there are strict laws regulating maximum rates and fees even for borrowers with poor credit histories, having bad credit generally means paying more for home improvement financing. A bad credit history may be penalized in the following ways:
- Higher interest rates: Bad credit presents additional risk to lenders and must be compensated for or they have no reason to make the loan. Interest rates can be much higher than those available to an A-rated borrower, depending on the borrower's profile and the maximum rates imposed by regulatory agencies.
- Loan to Value: Borrowers with excellent credit might qualify for a loan of up to 100% of the value of their homes. However, borrowers with bad credit may have the availability credit (amount of home equity they can cash out) severely reduced.
- Higher fees and Less Favorable Terms: Generally borrowers with bad credit are more likely to be charged higher fees in addition to higher rates. Additionally, prepayment penalties and other restrictions may be imposed on the loan.
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