Can I Refinance if I Have Bad Credit?
Can you Refinance and Save with Bad Credit?
Here is the story: you see hundreds of advertisements for loan companies boasting of low interest rates. You believe you should be able to refinance your loan to take advantage of these rates. Upon calling the advertised company you find that you might qualify to refinance, however, refinancing is going to cost you an arm and a leg.
Like many other homeowners and consumers, you need to find a way to pay your expenses. If you have bad credit, your options might seem limited. Homeowners with bad credit who want to refinance their mortgages and benefit from lower interest rates should be frustrated.
Why? Your bad credit score. Refinancing is going to be difficult with bad credit. Filing for bankruptcy or accumulating debt that you could not pay are two possible reasons for your bad credit. These defaults on your credit file cannot be resolved overnight; you must be patient. Your credit file and current rating will affect every lender to whom you owe money.
Before jumping into a refinance situation, ask yourself these questions:
- How long do I plan to stay in my house?
- Is my job secure? Could I face a lay off over the next few years?
- How many years do I have left on my existing loan?
- How quickly will I be able to recover the refinancing costs?
If the answers to these questions leave you questioning the benefit of refinancing, you need to determine if refinancing is your best option.
- If you do not plan to stay in your home for at least three more years, you will not be able to recoup the costs of refinancing.
- A lay-off in the next several years should make you question the importance of refinancing: you might consider increasing your savings more important than refinancing your home.
Having bad credit now is not as bad for consumers as having bad credit a decade ago. Consumers have more options available to them now than ever before. Knowledge is power:
- Knowing where you stand before talking to a lender can give you the upper hand.
- You need to know as much
about your credit rating as possible before walking into make a deal with a lender.
- Research the lender.
Lenders are extremely aware of your credit score; they have access to a database containing credit files and ratings. If you have bad credit, your score will show up on a mortgage refinancing report. If your bank decides to approve a refinance on your account, they are going to tack on extra fees. They use these fees as extra security because you are seen as an elevated risk. They can raise your interest rate; you have no way of stopping this.
Fortunately, you do have some leverage. Banks are business entities; they borrow money too. When interest rates are low, banks need to write new loans (or refinance existing loans) to make money. Also, consider the arrival of the sub-prime lenders who specialize in writing loans for people with bad credit. Sub-prime lenders want to refinance bad credit accounts so that they can collect massive fees on the backend.
Once you decide to refinance your loan, find out who has the best rate and determine who can get you the best deal. Some banks will give you better deals than others will. Some might even give you better deals than you thought possible. Finding the best deal will take some effort, but will pay off. Once you have found the best deal possible, determine if refinancing is worth all of the effort.
Consider raising your credit score before refinancing:
- Pay past due accounts before refinancing.
- Keep credit card balances down while you are trying to get the best possible credit rating.
Your mortgage can last a lifetime. Over the years, one extra percentage point tacked on to your rate can add up to thousands of dollars.
Refinancing with bad credit is possible. Just be sure to practice due diligence so that you are happy with the outcome. If your credit is already hurting, you want to make sure you are not going to worsen your credit file by refinancing. Make sure refinancing is a good option for you.
What to do next
Finance Comparison lists a number of highly competitive bad credit loans that you can apply for online. Simply compare rates, terms and apply online.