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How to Refinance A Debt With Bad Credit

financial broker guiding borrowers on how to refinance debt with bad credit

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Understanding Bad Credit

Before answering the question, one must first grasp the concept of bad credit.

Bad credit is a term that describes a low or poor credit score, which can make it difficult to access credit products such as credit cards, personal loans or mortgages. Bad credit usually results from various factors, such as missing payments, applying for too many credit enquiries, having unpaid debts, or being declared bankrupt. 

A bad credit score can affect your ability to borrow money from lenders, as it indicates that you are a high-risk borrower. A bad credit score is usually the result of adverse events in your credit history, such as:

  • Filing for bankruptcy, which stays on your credit report for up to five years
  • Defaulting on loan payments, which remains on your credit report for up to five years
  • Making late payments, which remains on your credit report for up to two years
  • Applying for multiple loans at the same time, which can lower your score temporarily
  • Having a high outstanding balance on your credit cards can increase your credit utilisation ratio and lower your score

However, having bad credit does not mean you are doomed forever. 

To avoid these scenarios, you should always pay your bills on time, keep your credit card balances low, limit your credit enquiries, and check your credit report regularly for errors or fraud. If you have a bad credit score, you can improve it by demonstrating responsible financial behaviour over time.

Alternatively, you can also go ahead and explore the options gained via a refinancing loan.

Understanding Refinancing

To answer the question posed earlier – yes, it is possible to refinance a debt with bad credit. However, like all loan instruments, one must first understand the concept of refinancing.

Refinancing describes switching from one home loan to another, either with your current lender or a different one. Refinancing a debt means taking out a new loan to pay off an existing one, usually to get a lower interest rate, a shorter repayment term, or access to additional funds. 

There are many reasons why people choose to refinance their home loans, such as:

  • To get a lower interest rate and save money on repayments
  • To access better features and benefits, such as an offset account, a redraw facility or a flexible repayment schedule
  • To consolidate other debts, such as credit cards or personal loans, into one loan with a lower interest rate
  • To access the equity in their home for other purposes, such as investing, renovating or buying a car

Refinancing can have many advantages, but it also involves some costs and risks you must consider before deciding. Here are some of the main factors to think about when refinancing your home loan:

  • The interest rate is the most apparent factor to compare when looking for a new home loan. A lower interest rate can reduce your monthly repayments and the total interest you pay over the life of the loan. However, you also need to look at the comparison rate, which includes the fees associated with the loan. A low-interest rate with a high comparison rate may not be as good as it seems.
  • The fees: Refinancing your home loan may involve paying some charges, such as application fees, valuation fees, settlement fees and discharge fees. These fees can vary depending on the lender and the type of loan you choose. It would be best to weigh these costs against the potential savings from refinancing. Some lenders may offer to waive or reduce some of these fees as an incentive to refinance with them.
  • The loan term is the length of time you have to repay your loan. You can extend or shorten your loan term when you refinance your home loan. Extending your loan term can lower your monthly repayments, but you will also pay more interest over the long run. Compressing your loan term can save you interest and mean higher monthly repayments. Choosing a loan term that suits your budget and financial goals would be best.
  • The loan features: Different home loans offer different features and benefits that can make your loan more flexible and convenient. Some of the standard features are:
  1. An offset account: This is a transaction account linked to your home loan that reduces the amount of interest you pay. For example, if you have a $500,000 home loan and $50,000 in your offset account, you only pay interest on $450,000.
  2. A redraw facility: This allows you to withdraw any extra repayments you have made on your home loan, subject to some conditions and fees. This feature can give you access to extra cash when you need it.
  3. A split loan facility: This loan option allows you to split your home loan into two or more portions with different interest rates and features. For example, you can have one portion with a fixed rate and another with a variable rate.
  4. A fixed interest option allows you to lock in an interest rate for a certain period, usually between one and five years. This option can protect you from interest rate rises but also means you may miss out on interest rate drops.

You need to compare the features and benefits of different home loans and decide which ones are important.

Refinancing your home loan can be wise if you research and find a better deal that suits your needs and goals. However, this task can be tedious, especially if this is your first time doing it. Fortunately, experienced mortgage brokers like Tiger Finance can help streamline the process for you with a vast array of partner lenders ready to offer you a wide array of loan options. Our relationship with our partners can also give you exclusive access privileges not normally offered to individual borrower applicants.

At Tiger Finance, we always guide you every step of the way with loan experts well-versed in the current situation in the world of financing. You can avail of a free consultation with our in-house financing expert without obligation to give you the most accurate picture of your loan situation today.

Contact Tiger Finance today so that we can help you begin your journey to secure the exact hassle-free loan product that you need.

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