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People typically do a bad credit refinance for one of the following reasons:
Bad credit refinance to consolidate bills
Someone who has high balances on several high interest rate credit cards, car loans or other forms of installment debt. A bad credit refinance loan with an interest rate of 12% is still better than paying 21% on multiple credit cards. Since the loan for a bad credit refinance is spread out over 30 years, the monthly payment for the loan (even at the higher interest rate) would still be lower than the total of all of the individual monthly debt payments.
Bad credit refinance to get a lower mortgage rate
A person may have decided 2 years ago to get a mortgage after filing a recent bankruptcy. The interest rate on this loan is likely to have been extremely high. After making some improvements to his/her credit, the borrower may try to get a new bad credit refinance in an effort to get a lower interest rate than they are paying on the current loan. If a person was paying 13% interest, a 10% interest rate could help lower the monthly payment and cut interest costs dramatically.
How People with Bad Credit Can Refinance
Here are some things you should do to approach your lender about refinancing:
Your house may be "under water." Many properties are now worth less than the remaining balance on the mortgage. If you default, the mortgage company gives up any hope of getting that remaining balance, and has to settle for whatever the house is worth--less the expense of selling it.
Refinancing a Bad Credit Loan
If you had bad credit in a previous time and were forced to take on a bad credit loan with a high interest rate, the time is now to rid yourself of it. Assuming you have repaired your credit, you can now refinance your bad credit loan into a lower rate and better terms.
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