How to refinance your Home Loan despite a bad credit score

Have a bad credit score? You can still refinance your Home Loan with some simple yet effective ideas. Read on to get an insight now!

Ajay Kulkarni had a Home Loan of Rs 30 lakhs for 20 years at an interest rate of 10%. Recently, there were some medical emergencies in his family and he could not pay the EMIs on time leading to the default of his loan repayments.

He then came to know about another lender who was charging an interest rate of 8.53% on Home Loans. He decided to give the option a shot and opted for a Home Loan Transfer.

But, his missed repayments had negatively reflected on his credit score and he did not know if his new lender would sanction his refinancing application.

Let’s help you to go about a Home Loan refinancing despite a bad credit.

How does you credit score affect refinancing?

You should know that financial lenders use your credit score           to find out if you can repay them on time. A credit score ranges within 300-900, and a score of 750 is a good score.

A credit score within 350 to 750 is average while anything less than 350 is bad.   If you have accumulated too much debt and a bad credit score, lenders will consider you as a ‘high-risk’ customer. Lenders may not wish to sanction your housing loan application.

Banks, in particular do not give priority to borrowers failing Home Loan eligibility.

How to refinance your Home Loan with a bad credit score?

• You will have to resolve your bad credit score in the first place. Try to pay off the costliest debt that you have. Also, try to at least pay the minimum amount due on your outstanding amounts
• If possible, deposit a particular amount in your bank account as the lenders may see that you have funds in the account to repay the Home Loan.
• You can also ask someone with a good credit score to co-sign your loan which may assure the lender that you will surely pay the loan on time and without fail.
• If a lender has rejected your Home Loan application, don’t try at the same lender or any other, why? Because a rejection also reflects on your credit score and reduces it even further.
• Rather than banks, apply for a Home Loan refinance with a non-banking financial company (NBFC) because NBFC are less strict than banks while handling your case.
• If you work for a noted company, you can negotiate with lenders as they do consider candidates with a bad credit score but with a good employer.
• You can also explain your lender about the bad credit score such as medical emergencies. You can make your case strong with original bills and medical certificate obtained from your physician.
• Nothing working? You can also approach credit management agencies; they may help you find the best match for your Home Loan refinance application.

You must watch out for some precautions

• If a new lender accepts your Home Loan refinancing, it’s good for you, but may charge a high Home Loan interest rate when compared to new customers. You should also see if other fees and transfer charges are higher or not. If the cost of the balance transfer is high, refinancing may not be the best option to go for!
• Is your new lender increasing the loan duration while decreasing the interest rate? Watch out! For example – The new lender provided Ajay a low interest rate but extended the tenure to 20 years. But, he had already repaid the loan for five years to the pervious lender. It means that Ajay’s Home Loan refinance is set to cost him a lot more in the long run and his monthly payments have reduced, though!
• If you have loan repayment by refinancing mode on mind, you need to consider the other charges that you will incur. You must add it to the total loan cost if there is an increase in the tenure.

 The Bottom Line

Home Loan refinance and that also on a bad credit score may be difficult but it is not out of proportion or is not impossible. The idea is to approach NBFCs than banks. Try to negotiate the terms and conditions by displaying your employer status or get a person with a good credit score to co-sign your loan. Also, try to improve your credit score as much as possible and consider all discussed pointers when deciding to opt for a Home Loan refinance.

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