Tips for Refinancing with Bad Credit

Having a poor credit score ranking can affect just about every aspect of a person’s life: being able to buy a home, renting, buying car insurance (being able to even buy a car), or even access to any line of credit. When faced with bad credit, the person will be constantly harassed by bill collectors, and in some very extreme cases can even be subject to having their wages garnished in order to pay back past debt.

Not only do people with poor credit ratings have to deal with everything mentioned above, they also have to find a way to reduce their debt, bring their credit rating back on track, and try to move on with their lives. Usually, one of the first steps taken to improve all of those things involves attempting to refinance loans with the bad credit rating, in order to better consolidate their debts and manage their finances in a more efficient and responsible manner.

The outstanding loans that should be refinanced first are:

1. Home mortgage loans
2. Car loans
3. Large-purchase loans (appliances, boats, RVs, furniture, etc.)

The reason to refinance these types of loans first lies in the fact that they are most likely why the person’s credit rating is bad in the first place. Also, because of the amount of money that is usually involved with these types of loans, the loans tend to demand the most attention. Thus, if these loans are refinanced and controlled in a manageable manner, the process will help the person better pay off their other outstanding debts. One thing to keep in mind is that it is very important to never default on the loan (the original and the refinanced version).

Home Mortgage Loans

· Talk to the mortgage broker—often human contact will be favorable toward a person with bad credit being able to refinance a mortgage
· Pay off a credit card or two, especially if the cards carry a high balance
· Get a co-signer with good credit to sign off on the new loan

Car Loans

· Make sure the amount the car is worth is more than the amount owed on the loan
· Talk to a couple of sub-prime or high-risk lenders rather than prime lenders—sub-prime or high-risk lenders are more likely to refinance loans with bad credit
· Though not always the case, having a car that is no more than 5 to 10 years old, with less than 70,000 miles driven on it, can go a long way to securing a refinance

Large-purchase Loans

Refinancing these types of loans is advisable if the person cannot refinance a home or car loan (or does not own a house or car). If contemplating a large-purchase loan refinance, make sure the returns made on the new rate are greater than simply paying off the old loan.

The Bottom Line

The refinance process does not have to be difficult; in fact it is usually a pretty standard process that is simple to adhere to. The whole reason to refinance a loan is to essentially take out a loan to pay off other outstanding loans. The refinanced loan will end up saving the person money because taking out a new loan will actually cost less than dealing with the higher interest rates associated with the outstanding loans.


Jennifer Carrigan is a freelance financial blogger when she is not writing on behalf of

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