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How to Refinance a Home Loan with a Low Credit Score

A common question amongst borrowers of home loan is if they can refinance their home loan with bad credit. The answer is it is possible but it may be problematic.

Refinancing – What it Is

Refinancing a loan is a process of replacing or switching an existing home loan from one lender to the other. The new lender makes a payment of the outstanding loan amount to the initial lender. The borrower then has to repay the loan to the new lender in the form of EMIs.

Refinancing assists you with lowering the interest rate of your home loan, which in return translates to actual savings in the long term. Changing the mortgage to a lower rate of interest not only reduces your EMI payments, but can assist you with ending the loan in a shorter time span. This means that, in the long run, you pay less. 

Another advantage of refinancing is switching from a fixed-rate home loan to a floating-rate loan. In this way, taking benefit of the existing low rates of interest in the current market. A home loan EMI calculator is an effective tool to help you with refinancing a loan. 

Criteria to Qualify for a Home Loan Refinance

Similar to applying for a new home loan or mortgage, certain fixed criteria has to be passed prior to qualifying for home loan refinance. One important factor which determines eligibility is – the credit score. It is a determining factor of creditworthiness and lenders utilize it to ascertain your approval. 

The higher the credit score, the better are the approval chances. Apart from approving the request, the credit score plays a vital factor in knowing the rate of interest of the refinance. The better the credit score, the better the chances of obtaining a good interest rate. 

How to refinance with a low credit score

As qualifying for a home loan refinance with low credit score is difficult but not impossible, given below are a few steps which will help you in qualifying for a refinance with a low credit score.

1.Prove that your income can back the EMI payments

A reason why lenders hesitate to take on borrowers with low credit score is that they are concerned about their repayment ability. You can lessen this lender’s fear by demonstrating that you have a consistent income which can support EMI payments in the future. Also, if you have got an increment at work recently, or have an extra income source, the lender will look at your application with a favourable view. If it is proved to the lender that you have  a stable job with a steady income, your refinancing request may be granted. But you may still have to pay higher rate of interest in comparison to borrowers with credit scores which are higher.

  1. Include a co-applicant

If the credit score is very low to qualify, you can go for refinancing with a co-applicant or guarantor. This works out to be great for spouses who have an unpredictable credit score. For example, if your wife enjoys a good credit score, then including her as a co-applicant will get approval for your refinance sanction. In this way, better interest rates may be enjoyed.

  1. Approach NBFCs and housing finance companies

In comparison with banks, NBFCs and housing finance companies have flexible eligibility criteria. Such lenders not only look at your credit score but also take into consideration the whole credit history to determine your eligibility. Consequently, you are able to qualify for loan refinance, even with low credit scores. But, the rate of interest offered by lenders are generally high in comparison to conventional commercial banks. 


If the above options don’t work for you just step back and assess your finances before refinancing. A home loan EMI calculator can assist you with assessing your finances. Take time out to understand the reason of poor credit score and work on improving it. Take necessary steps to enhance your credit score. The credit score can be improved prior to applying for a refinance which will help you get better interest rates and increased savings. 


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