Navigating the World of Loan Refinancing

Understanding Loan Refinancing

In the simplest terms, loan refinancing is replacing an existing loan with a new one. This financial move is typical in Australia and applies to various home, business, personal, and car loans.

The Potential Benefits of Refinancing

Refinancing can offer a multitude of benefits:

1. Lower Interest Rate: If market interest rates have decreased since you took out your original loan, refinancing could allow you to capitalise on these lower rates, potentially saving you a significant amount of money over the life of the loan.
2. Change in Loan Term: Refinancing provides an opportunity to adjust the term of your loan. Extending the term can reduce your monthly payments, providing immediate financial relief. Conversely, shortening the term can result in higher monthly payments but save you money in the long run due to less interest paid.
3. Debt Consolidation: If you’re juggling multiple debts, refinancing can consolidate them into a single loan, often with a lower interest rate. This decision can simplify your finances and potentially reduce your overall debt burden.
4. Access to Equity: If your property has appreciated, refinancing can allow you to tap into this equity, providing funds for other financial needs.

Refinancing with Bad Credit: Is It Possible?

Even with a less-than-stellar credit rating, refinancing is still a viable option. Here are some strategies to improve your chances:

1. Improve Your Credit Score: Make a concerted effort to improve your credit rating. This measure could involve repaying existing personal debts on time and in full.
2. Demonstrate Your Equity or Savings: Show the lender that you have sufficient equity or savings. This demonstration could mean borrowing less than 80% of the property’s value, also known as the loan-to-value (LVR) ratio.
3. Consider Specialist Lenders: Some lenders specialise in working with individuals with impaired credit. These lenders may be more willing to approve your application, albeit at a higher interest rate.

Finding the Right Place to Refinance Your Debt Despite Bad Credit

Now that you know refinancing with bad credit is possible, the next inevitable question is where to get it. 

While it is true that a less-than-ideal credit history might make it difficult for you to get refinanced with a non-conforming loan from traditional institutions, specialised lenders who base their loan decisions on your equity rather than your credit score are available out there. 

These lenders prioritise your equity when approving a non-conforming loan by using your property’s current loan-to-value ratio in assessing your eligibility. The greater the equity in your property, the less risk the lender associates with you. Most lenders typically mandate a minimum of 20% equity in your property. This requirement ensures that your Loan-to-Value Ratio (LVR) remains under 80%, a threshold where lenders perceive you as a less risky borrower. Having at least 20% equity significantly bolsters your chances of securing refinancing from a non-conforming lender.

Among the popular lenders specialised in bad credit lending are Pepper Money, State Custodians, Fox Symes, and Red Rock Mortgages. Others prefer a more streamlined process to access the best possible refinancing solution by contacting an experienced mortgage broker with an extensive partner-lender-lender network. Such brokers can present you with diverse financing options, including those from Tiger Finance, Lydian Financial Services, My Loan Choices, and others. 

Weighing the Pros and Cons

While refinancing can offer significant benefits, it has potential risks. For instance, market conditions could change, resulting in higher interest rates. Additionally, if your credit score has deteriorated, you may need help to secure a new loan. Therefore, it’s crucial to carefully consider your financial situation and consult with a financial advisor before deciding to refinance.

Options For Refinancing With Bad Credit In Australia

If you decide to refinance with bad credit, several options in Australia suit your needs and circumstances. Some of these options are:

Government Programs

In Australia, various government programs can help eligible homeowners refinance their home loans and achieve their financial goals. Some of these programs are:

• Home Guarantee Scheme: This is a guarantor scheme where the government guarantees loans so eligible home buyers avoid paying Lenders Mortgage Insurance (LMI), even with a deposit as low as 2% of the property value. There are three schemes under the Home Guarantee Scheme: First Home Guarantee, Regional First Home Buyer Guarantee and Family Home Guarantee. Each scheme has different eligibility criteria, location restrictions and income caps. The scheme is administered by the National Housing Finance and Investment Corporation (NHFIC) and annually supports up to 50,000 home buyers.
• First Home Super Saver Scheme: This allows first-home buyers to save a deposit for their first home inside their super account to take advantage of the concessional tax treatment. Under the scheme, the government has increased the total amount of savings borrowers can release from super to deposit a home from $30,000 to $50,000. The scheme is administered by the Australian Taxation Office (ATO). It requires a determination letter from the ATO specifying the amount the agency can release from the super to use as a deposit for a home loan.
• Help to Buy Scheme: This is a shared equity scheme where the government offers an equity contribution of up to 40% of the cost of a new home or 30% for existing homes. The buyer won’t need to pay rent on the government-owned stake. The scheme is available for low- and middle-income families with a yearly income of $90,000 or less for individuals or $120,000 or less for couples. The scheme will run for four years, beginning in 2024, and support 40,000 families in securing a home.

These government programs can help homeowners refinance their home loans by reducing the deposit required, lowering the interest rate or increasing the borrowing capacity. 

However, they also have limitations and conditions that need to be met, such as property price thresholds, loan terms and repayment obligations. Therefore, comparing different options and seeking professional advice before refinancing is essential.

Private Lenders

Aside from government and traditional banks, borrowers can also turn to private lenders to get refinancing loans. These private lenders are more specialised to handle borrowers burdened with bad credit and can offer flexibility in their approval criteria.

The Role Of Mortgage Brokers in Refinancing with Bad Credit

While borrowers have all the freedom to search for private lenders independently, this can often take time and effort, especially when burdened with bad credit.

Fortunately, specialised mortgage broker firms like Tiger Finance strive to make it simple and easy for every Australian to get the funding they need to achieve their big life goals. An experienced bad credit firm, Tiger Finance partnered with over 30 of the top lenders in the country to offer the most comprehensive array of loan options to fit any refinancing requirement.

A Viable Option To Get Out Of Bad Debt

Refinancing a debt with bad credit is not impossible but requires careful planning and preparation. You should check your credit report and score, compare different lenders and loans, and provide evidence of your income and expenses. You should also consider the pros and cons of refinancing with bad credit and choose an option that suits your needs and circumstances. Refinancing with bad credit can help you save money on interest and fees, access additional funds or features, or consolidate your debts into one manageable payment. 

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 get 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.