Career Woman

How to refinance a loan even if you have bad credit


When your business is strapped for cash, it can be helpful to reevaluate your finances and refinance a loan to make sure you are getting the best deal possible. One way to accomplish this is to refinance your smaller loans, such as car loans for example. However, it can be tough to say whether refinancing will work for you personally – especially if you have bad credit.

Of course, struggling with poor credit isn’t exactly uncommon. Fox Business reports that nearly a third of Americans have a credit score lower than 601. And this statistic doesn’t even include all the people with no credit histories whatsoever.

How to refinance a loan — even if you have bad credit

The advantages of refinancing your business loans include lowering your monthly payments, turning equity into cash (often with the goal of paying off other debts), and getting a lower interest rate. Admittedly, attaining a lower APR often depends on a maintaining and showcasing a healthy credit score. Thus securing low interest payments might be tough if you have bad credit. But “tough” doesn’t mean impossible. Here’s how to refinance a loan with bad credit.

Reevaluate your credit standing annually

Perhaps you had bad credit when you first started your business. But over the past 12 to 18 months, you’ve consistently made on-time payments on your loans and other debts. If this is the case, you could have a slightly better credit score than you remember. Take advantage of your annual free credit check to see if your scores have improved. If they have, it might be a good idea to look into refinancing.

Similarly, it’s a good idea to investigate your credit report to root out any errors. Sometimes there are mistakes in your credit reports that unfairly drag down your credit score. Be sure to look for debt that have already been paid (but not updated) or debts that aren’t even yours.

Talk with your lender

If your credit score has improved over the past several months, it might be best to check with your current lender for better refinancing opportunities. The company might be able to offer you a better rate or a lower APR. It also helps to reinforce the idea that you’ve consistently made on-time payments, and thus are a lower risk for the lender than when you first met.

Obviously there are no guarantees that this will work, as each lender has the right to approve or deny based on their assessment. However, lenders also understand that you could transfer your loan to one of their competitors and, hence, they lose out on the interest payments you are making. So even if your current lender denies your request, you still have the option to shop around.

Shop around for a new lender

Even if your current lender offers you attractive terms for your car loan, it’s wise to compare the proposal with those offered by other companies. For instance, you can find guaranteed personal loans with bad credit that work in your favor. Still, you’ll need to assess the total cost of the loan, the number of monthly payments, and any fees to make sure you are getting the best deal.

Increase your cash flow

Another reason people with bad credit choose to refinance a loan is to alleviate some financial strain. If your monthly payments are becoming untenable, it’s prudent to discuss this with your lender. In most cases, lenders are open to lowering the monthly payments in exchange for a longer payment period. In their eyes, this is much better than watching the account become delinquent; which is a lose-lose for both the lender and yourself. This is especially helpful in cases of a personal emergencies, such as an extended hospital stay or loss of employment.

Find a co-signer

Now, there is one last ditch effort to refinancing your business when living under the cloud of poor credit – finding a co-signer. A cosigner should have a better credit score than yourself. By including this person on the loan, they help give the extra push necessary to getting your refinanced car loan approved.

Just keep in mind that this person (whether they be a friend or family member) is on the hook for any payments you fail to make. It’s best to continue to make your payments in-full and on-time to avoid souring the relationship.

Now that you understand your options to refinance a loan even with bad credit, you can make the best choices for your situation.

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