Have you taken a loan (or even several) with a bad credit history and can’t repay it? There is a way out. It is possible to refinance a microloan in another microfinance organisation. This is possible both in case of overdue debts and bad credit history.
Three main tips for such situations
Do not panic
In the worst case scenario, you will only overpay a certain percentage of the cost of the loan. The debt will not grow indefinitely: this is stipulated by law.
Do not try to cheat the system
The worst thing you can do is to mislead the microfinance organisation by providing incorrect details on the application form. This is a direct way to the blacklist. Yes, such organisations do not check borrowers thoroughly, as banks do, but there will still be a check. They see your credit load and may have common bases with other microfinance organisations.
Do not default on payments
Sometimes you want to drop everything and forget about your debt. Don’t give in to weakness. Try to make your payments on time so that you don’t increase the amount you owe. Even if it’s difficult or seems futile.
Your new creditors will also appreciate how you treat outstanding debt. It’s one thing to be a couple of days late, but it’s another to be systematically late.
What you need to know about refinancing a loan
The most favourable way to refinance loans is with a consumer credit. Unfortunately, with a bad credit history, your chances of getting one are slim. However, if you don’t have any outstanding credit or loan debt, it’s worth a try. You may not get a loan, but you will be offered a credit card: the interest rate on it will still be many times more favourable than on a loan.
If credit products are unavailable, you can request a new loan for the same amount, but on more convenient terms: lower interest rate or longer term. Microfinance organisations are more loyal to borrowers and usually do not look at credit history, other loans and even debts (if they do not affect them directly).
Advertising may promise a favourable refinancing of a microloan without refusal, but in reality this is not the case: it is possible to get a refusal even with a good credit history.
What difficulties may arise
Conditions are unlikely to improve
Increased demand raises the price: this is a law of the market. You will have to actively apply to banks and microfinance organisations in order to solve the issue faster. Increased enquiries will affect your credit history. Once the situation is assessed, lenders will raise the rates to earn more from you.
No lender wants to lend money without benefiting themselves. So, it’s either thorough research to choose an organisation quickly or high interest rates: choose what suits you best.
There is a risk that your situation may worsen.
First of all, assess your possibilities. If you do not analyse your situation beforehand, you may submit many applications and get a lot of rejections. The rejections will also appear on your credit history. With each rejection, your score will drop and your chances of getting a refinance will be even lower.
A late payment will ruin everything
If you can’t find the money in time, late payments will occur, and it will be even harder to achieve refinancing for past due loans. Old problems in your credit history that are ruining your score aren’t as bad as a new delinquency.
How to get out of the situation correctly
Apply only to the most loyal microfinance organisations and banks
Be consistent and careful. Choose 1-3 options with good reviews and the highest probability of approval. Apply online.
Don’t settle for bad terms
If the terms of refinancing do not make your financial situation easier but only postpone the crisis, there is no point in applying for it. From a credit rating standpoint, it’s better to have one bad loan than two.
Choose refinancing with conditions that are comfortable for you (for example, with transfer to a card, without collateral and remote repayment). Only borrow money if you are confident you can pay it back this time.
Have a plan B
When the deadline to pay off your loans in full is approaching, don’t put all your energy into finding a refinance. Look for other solutions that will support you in case you fail. For example, you can borrow money from friends for the next instalment or contact a microfinance organisation and arrange to reschedule your payment in advance.