Refinancing With Bad Credit

Every so often, it might be fortuitous to refinance one of your loans. Whether talking about a home mortgage, a personal loan, or an auto loan, refinancing can help you save money and take advantage of new offers that the bank might be advertising. Most people who go through the refinancing process have sterling credit, though. For people who are doing refinancing with bad credit, some significantly challenges can lie ahead. It is not impossible to find refinancing sources with bad credit, though. You just have to get a bit more creative and look a little bit harder.

Refinancing with bad credit through a co-signer
The first and most popular way to refinance with bad credit is to use a co-signer. Even if you have struggled with your credit score in the past, that should not disqualify you from saving money on a better loan deal. With this in mind, if you spot a new deal from your lending bank that makes financial sense, then you should try to get a co-signer to help you make it happen. The most obvious choice for a co-signer would be one of your family members. If you have a parent, spouse, or sibling with excellent credit that is able to help you out, then take advantage of that.

Understanding that refinancing with bad credit can sometimes get sticky. You are involving other people in your finances, which brings about certain challenges. The majority of banks have co-signer agreements that allow those individuals to opt out of the loan if you make 24 consecutive on-time payments, though. This means that it is only a short-term commitment they are making to help you out, instead of some long-term financial burden.

Refinancing with bad credit at specialty banks
Some financial institutions are more willing to work with people who have poor credit than their competitors. For this reason, people looking for refinancing with bad credit will need to look for those banks and exploit their bad credit refinancing programs. Understand at the beginning, though, that this service will come at a premium. Because you represent a higher level of risk for the lender, they are going to charge a higher rate on your account. They are often happy to do this, especially if they suspect that you have turned the corner. Still, if this rate is better than the one you are currently paying, it can be a win-win situation for everyone involved.

Understand that no matter which option you choose, there will be some costs associated with bad credit refinancing. Typically people with good credit can refinance their home loan at prime rates. These rates will vary depending upon the economic conditions, but tend to sit between 4% and 6%. Those with poor credit can get loans at between 6.5% and 7.5% on mortgages less than $450,000 if they use a co-signer or a specialty bank. Additionally, you should know that refinancing with bad credit will bring about very tight restrictions. Most banks will assess large fees for late payments or missed payments for people with bad credit. These costs have to be considered if you want a realistic situation.

Many people seek refinancing with bad credit through family members, but this is not the perfect solution. Though it might work over the short term, many things can go wrong when you start borrowing money from the people close to you. It is always better to work with a bank if you can find a solution there, as this will allow you to keep your family relationships and your finances separate. If something goes wrong, you won’t have to worry about the additional stress of dealing with prolonged family strife.