When you have a combination of a bad credit history and an overwhelming debt burden, you may decide to consolidate all of your credit obligations. The objective of a secured loan or remortgaging is to put all of your credit under one roof and make a single, affordable repayment each month.
Reasons to take out a secured home loan with bad credit
If you've missed or made late payments on your credit obligations during the last seven years, you'll have an adverse credit history. This means that it's far more difficult to get an unsecured loan from your bank. However, CCJ loans are available, provided that you've got sufficient equity in your home and can afford to make the necessary repayments.
Rather than making lots of small payments to your creditors, you're able to consolidate debt. This involves taking out a bad credit home loan, paying off your existing creditors and paying money to a single lender. This simplifies your personal finances and decreases the likelihood of accruing a charge for a missed or late payment.
Spreading the costs
You're also able to spread the cost of repayment with a mortgage for poor credit. Rather than making repayments towards revolving credit indefinitely, you'll know when your debt will be completely cleared. Spreading the repayments over a longer period of time will also help to improve affordability so less of your monthly income goes towards servicing debt.
Is it advisable to refinance with poor credit?
Guarantees being seized
The main problem with taking out a low credit mortgage for the purpose of debt consolidation is that it involves turning unsecured into secured debt. If you default on the agreement, this gives your creditors the right to recover their money by repossessing your home. When you have a poor credit history, a debt relief solution is a far less risky proposition.
Interest amount accumulates
Although spreading the repayments reduces the amount that you pay on your debts each month, it actually increases the amount of cumulative interest that you'll pay. The longer a debt is allowed to continue, the more it will cost you. Lenders regularly talk customers into agreeing to the maximum term because it's the most profitable option for them. Other associated expenses
Sub-prime mortgage lenders are far more difficult to find because so many people have defaulted on their agreements. If you're able to find a lender who will allow you to refinance with poor credit, the cost of borrowing will be high. You will also have to meet other expenses, including the cost of a surveyor. If you repay the debt early, you will pay a hefty redemption penalty.