If you’re currently in a loan that is becoming too difficult for you to pay, then you may be considering what your refinance options are. For most people with regular credit scores, they can go into the bank or lending agency and probably get their loan refinanced fairly easily. If you have bad credit, then it may be a lot more difficult for you to be able to get your loan refinanced. Some banks definitely will do a bad credit refinance, but the loan terms will not be good for you in the long run. Sure, you’ll be able to lower your monthly payment amount which can help you to keep your head above water with your other finances, but in the long term it is not an ideal situation.
The way that the banks can help to curb some of the risk of refinancing to someone who has not done well with credit and loans in the past is by significantly increasing the interest rates to pretty high levels. While some would consider this gouging, the government does not see it this way because the banks are helping you out by changing the loan terms that you originally agreed to. For a first time loan, these rates may be too much, but as a bad credit refinance, they are doing you a favor and taking on more risk in the process.
The higher interest rates will help the bank to recover more money over time. Since your payments will be lower, the length of the loan will be longer to make up for the fact that you are paying less each month. Since only a small percentage of the interest charges are being paid, all of that money compounds over time and you’ll end up paying a lot more money in the long run, for the convenience of a lower monthly payment. You’ll really need to decide if that option is better, or if there’s other sacrifices you can make to continue paying your loan at the current payment amount.