Reasons for getting a bad credit refinance loan include:
Bills consolidation - For individuals with 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. Moreover, the loan for bad credit refinance is spread out over 30 years and the monthly payments for the loan are still lower than the total of all individual monthly debt payments.
Lower mortgage rate - For an individual who decides to apply for a mortgage loan after filing a recent bankruptcy, the interest rate on the loan may be extremely high. However, after making some improvements to their credit, such a borrower may try to for a new bad credit refinance loan in an effort to get a lower interest rate on the existing loan. For example, if a person has been paying 13% interest, a 10% interest rate on a bad credit refi loan will help lower the monthly payment and cut interest costs substantially.
Ideally, individuals should make their payments on time for two consecutive years on a bad credit refinance loan. This will enable for them to take continued steps to improve their credit, and also to refinance into a much lower interest rate.
Bad credit refinancing is one of the best ways to repair a poor or below average credit history. However, lenders are always hesitant to provide loans to people with bad credit without incurring high interest rate and payments. Individuals seeking to bad credit refinance are advised to do some market research and gain a comprehensive idea on the refinance loan market, in particular on mortgage lenders, and on the various interest rates prevailing for bad credit refinance loans.
It should also be kept in mind that individuals will likely be dealing with sub prime lenders for bad credit refinancing. Sub prime lenders differ from conventional lenders in that they lend at a slightly higher interest rate, and most are their loans are bad credit refinance loans. The approval process for the sub prime lenders is also similar to that of the conventional lenders and takes into account the credit history, assets, employment, debt-to-income ratio, etc.