Can ones home be of any extra importance for the unemployed people? Watching the growing interest of loan providers towards unemployed people makes one think on these lines. The present outlook becomes all the more important, given the treatment that was meted out to the unemployed people earlier. Let us remind the readers that unemployed people were often refused loans; the reason being that unemployed borrowers didn’t have a stable income, and would thus be incapable of making regular payments.
Loans offered to unemployed borrowers against their home are known as secured loans for unemployed. The present outlook of borrowers towards the unemployed people springs from the safety that they perceive in borrowers’ home. Risk involved in a secured loan for unemployed is naturally low. Borrowers always have at the back of their mind that they cannot delay the payment for long; since with the borrower’s home in its possession, the lender can anytime liquidate it for recovering the unpaid loan proceeds.
Secured loans for unemployed are also known as home equity loans. Equity is the value that will be received if home is sold. While home is not actually sold, the value derived from this process is a good measure of the amount of secured loan for unemployed to be lent.
So, if the available equity in home amounts to ₤30,000, then the unemployed borrower can command an amount up to ₤30,000. It has been seen generally that only 70% of the home equity is compensated. Had it been for the regular borrowers, they would have easily secured as much as 80% of the home equity. However, as the unemployed people put greater risk on lenders, they will have to do with smaller compensation.
A secured loan for unemployed can significantly help the borrower in making larger expenses. The amount extended under the loan is enough to settle larger debts and undertake larger home improvements.
Secured loans for unemployed or home equity loans may branch out into Home Equity Line Of Credit (HELOC) if the usage of loan proceeds is not made in lump-sum. In HELOC, the borrower agrees to draw the loan proceeds as a credit line, i.e. as and when the borrower faces the needs. Unemployed people can use the HELOC method as a regular monthly income.
Secured loans for unemployed require the borrowers to draw a somewhat accurate probability of the time within which they will regain their job. There are two reasons behind this. Firstly, borrower can decide the repayment period accordingly. Secondly, borrowers can decide the rate of usage of secured loan for unemployed according to the period for which unemployment will be. If the time of unemployment is predicted to last long, it will be recommended that the secured loan for unemployed not be consumed fast. HELOC spread over a larger period will be best for this kind of people.
Borrowers opting for secured loans for unemployed will have to pay a greater rate of interest. This is true even when the loan is secured against home of the borrower. However, the rate of interest is not unjustified. The risk involved in the loans is to blame for the increased rate. When compared with the difficulties that borrowers have to face in obtaining finance, the rate of interest seems very inconsequential.
However, loan providers must not be allowed to play as they want with the unemployed people. The terms of the secured loan for unemployed must be well defined and be according to the criteria set by the financial authorities. Unemployed people must understand that home is an important asset; in their case home becomes all the more important because of the absence of any regular income to fall back on. Consequently, any decision regarding binding home to any loan must be made with sufficient thinking.