Key Takeaways
- Refinancing can strengthen your financial position. When done strategically, it can lead to better loan terms, lower repayments, and a fresh financial start.
- Refinancing is still possible with bad credit. While challenging, some lenders specialise in helping borrowers with poor credit.
- Non-bank or specialist lenders offer flexible solutions that traditional banks usually don’t.
- It’s important to watch out for certain risks when refinancing with bad credit, including higher interest rates, potential for incurring more debt, and possible equity risk.
- To apply for a bad credit mortgage refinance, determine your borrowing needs, and apply online through our website without any hit to your credit file.
- To improve your chances of approval, start by reviewing your credit report for potential errors. It’s also important to avoid quick fixes like short-term, high-interest loans.
- It's a good idea to consult a lending expert like Dark Horse Financial. A good broker understands lender policies and can match you with the most suitable refinance lender.
Refinancing your home loan can be a strategic move to reduce interest rates, consolidate debt, or access equity. One of the best times to refinance is when your credit score improves, allowing you to access better rates and terms. But what if you have bad credit? Though securing a refinancing loan may be more challenging, it’s completely possible. Our guide will help you understand the refinancing options available when dealing with bad credit.
Understanding Refinancing and Bad Credit
Refinancing involves taking out a new loan to replace your current one. You go to a lender (usually a different one from your current lender) and seek a loan that covers your current loan, ideally with a better interest rate and more favourable terms. Borrowers with good or improved credit scores have plenty of mortgage refinancing options. On the other hand, it can be challenging for those with bad credit to refinance successfully.
In Australia, a credit score below 500-600 is generally considered poor. Such a score can result from missed payments, defaults, or high credit utilisation. Major credit reporting agencies like Equifax and Experian maintain these scores, which lenders use to assess your creditworthiness.
Can You Refinance a Home Loan with Bad Credit?
Yes, you can refinance a home loan with bad credit, but your options may be more limited compared to borrowers with good credit. Traditional lenders, such as major banks, typically prefer applicants with strong credit histories.
However, several bad credit refinance lenders in Australia cater specifically to those with low credit scores or past financial issues. You only need to find the right lender and loan product (ideally with the help of qualified lending experts).
Why Go For Bad Credit Mortgage Refinance Solutions?
Despite the challenges, refinancing with bad credit can offer several benefits:
- Lower Interest Rates: Even with a low credit score, refinancing can potentially reduce your interest rates, leading to significant savings over time.
- Debt Consolidation: Combining multiple debts into your mortgage can simplify repayments and potentially reduce overall interest costs.
- Access to Equity: If your property has appreciated in value, refinancing can allow you to access this equity for other financial needs.
- Improved Loan Features: Switching to a new lender might provide better loan features, such as offset accounts or redraw facilities.
- Improved Financial Position: Refinancing, when done correctly, can help you deal with a loan that’s too difficult to manage, potentially leading to lower rates and lower monthly repayments. This can improve your overall financial position.
Risks of Refinancing with Bad Credit
Refinancing with bad credit presents several challenges:
- Stricter Lender Criteria: Some lenders may impose larger deposits or more comprehensive documentation requirements.
- Higher Interest Rates: To offset perceived risks, lenders might offer higher interest rates to borrowers with bad credit.
- Limited Loan Options: Not all lenders offer bad credit refinance options, reducing your ability to find competitive rates.
- Potential for Further Debt: Consolidating debts into your mortgage can lead to a longer repayment period and more interest paid over time.
- Equity Risk: When you refinance to access equity, you’re increasing the size of your loan. If property values fall or you’re unable to keep up with repayments, you may be at risk of negative equity (owing more than your home is worth).
Refinancing Options for Bad Credit
In general, major banks and other traditional lenders are reluctant to lend to those with bad credit. Bad credit poses a risk to lenders, so approval chances are slim, and if they do approve loans, the rates and terms will be less favourable.
Thankfully, there are lenders across Australia willing to provide bad credit refinancing options:
- Non-Bank Lenders
- Alternative Lenders
- Specialist Lenders
- Private Lenders
While they do provide refinancing options to help you better manage your repayments, it may be challenging to secure low rates. That’s when you call the help of lending experts like Dark Horse Financial. We can compare rates on your behalf to find the best one, allowing you to get the most out of your refinancing loan.
How to Apply for Refinancing with Bad Credit
If you’re ready to take the next step, here’s a basic outline of the process to apply for refinancing, even with a bad credit score:
1. Assess Your Current Loan
Understand your current loan balance, interest rate, repayment terms, and whether there are any break fees associated with exiting early. This helps determine whether refinancing is likely to be beneficial in your case.
2. Apply Easily Online
Apply for bad credit refinancing through our online form. It only takes minutes, and we respond as quickly as possible. We’re experienced in bad credit lending solutions, and we can find the best refinance lender in Australia for people in your situation.
3. Formal Loan Application
Once you agree to a solution, we’ll submit your full application with all requirements. The lender will assess your application and can take anywhere between a few days to a few weeks to approve.
4. Loan Settlement
Once your loan is approved, your new lender will disburse the funds, which you can use to repay your previous loan. Afterwards, you’ll start making repayments under the new terms.
Tips for Success When Refinancing with Bad Credit
To give yourself the best shot at securing a better home loan deal, consider the following:
- Check Your Credit File for Errors: It’s not uncommon for mistakes to appear in credit reports. Dispute anything that’s incorrect.
- Don’t Hide Your Credit Issues: Be upfront with your broker or lender about your situation. Transparency builds trust and allows them to tailor a solution.
- Document Your Improvement: Show how your financial situation has improved (if applicable). This might include steady income, lower debt levels, or reduced living expenses.
- Avoid Short-Term Fixes: Some payday lenders offer high-risk short-term loans to “clean up” your debts before refinancing. These can hurt more than help.
- Stick to a Budget: Demonstrate your financial discipline by tracking spending, paying bills on time, and building up some savings.
How We Can Help
Navigating mortgage refinancing options when you have a poor credit history can be difficult on your own. That’s why it’s important to seek help from an experienced mortgage broker like Dark Horse Financial. Here’s what we can do for you:
- We have access to a wide panel of lenders, including those that deal specifically with bad credit customers
- We can assess your unique circumstances and match you with suitable lenders
- We can negotiate better interest rates or terms
- We help manage and streamline the application process
- We understand how to present your case in the best light to maximise approval chances
Final Thoughts
While bad credit mortgage refinance might seem challenging, it’s far from impossible. With the right preparation and help from professionals, many Australians with credit troubles find success in securing a better loan.
Whether your goal is to lower your repayments, consolidate debt, or access home equity, refinancing can be a powerful financial tool, even if your credit file is less than perfect.
Get a Bad Credit Mortgage Refinance Today
If you're looking to refinance your home loan with bad credit, reach out to our expert team today to explore your options and find the best refinance lender in Australia for your situation. We work closely with a network of bad credit refinance lenders who can understand your situation and provide funding when others won’t.
