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Refinancing Your Home Loan When You Have Bad Credit

You can switch to a better home loan even with a bad credit report


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While having a bad credit rating is not ideal particularly if you want to refinance, there are some specialist lenders that will still review your application.

However, you'll need to make a conscious effort to improve your credit rating and take control of your debt. This may involve demonstrating to the lender that you have enough equity or savings to borrow less than 80% loan-to-value (LVR) ratio.

If you're thinking of refinancing to secure a better rate, features or to consolidate debt, here are some steps to help you with the process.

Apply for a bad credit home loan today

Data indicated here is updated
Loan purpose
Offset account
Loan type
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Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
Pepper Money Easy Near Prime Full Doc Home Loan - LVR >55% to 65%
$15 monthly ($180 p.a.)
Available for former bad credit borrowers who have had a clean credit file for the last 24 months. Available for purchase or refinance.
Pepper Money Advantage Specialist Full Doc Home Loan - Standard LVR 55%
$15 monthly ($180 p.a.)
Available for borrowers with bad credit history. Can be used for purchase or refinance even with negative listings on your credit file.

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Other lenders who can help

There are several lenders in Australia specialising in bad credit lending who could help you, including:

How to refinance if you have bad credit

refinance home loan

Your eligibility to refinance to a non-conforming loan is in part determined by your property's current loan-to-value ratio, as lenders look at the existing equity you have. The more equity you have in your property, the less of a risk the lender will see you.

Most lenders will require that you have a minimum of 20% equity in your property. This means your LVR would be under 80%, which is the benchmark where lenders perceive you as less risky. Having equity of at least 20% will increase your chances of refinancing to a non-conforming lender.

Here are some tips to help you get started:

  • Get a copy of your credit file. Accessing your credit file will help you understand how you look from the lender's perspective. This will give you an idea of the things a lender will look at when considering you as a customer. You can see your current credit limits, number of credit cards that you have and any late payments which have been reported.
  • Take control of your debt. The next step is to be proactive about trimming any existing debt that you have. If you're having trouble meeting your credit card or utility payments, consider contacting your provider to negotiate a new payment plan to ensure that you pay your bills or repayments in full and on time.
  • Visit a mortgage broker. A licensed mortgage broker can discuss your borrowing needs with you in detail and help you with the application process. They will be able to draw upon their panel of lenders to find one that's more likely to review your application given your impaired credit status.
  • Speak to a specialist lender. Specialist lenders evaluate borrowers not on the number of defaults and the amounts of each of these defaults, but how long ago you made these mistakes. They recognise that you may have become credit impaired due to life events, such as divorce, illness or loss of a job, and are willing to offer loans to help you own your home and pay off existing debts.
  • Borrow less than 80% LVR. This avoids the need for Lender’s Mortgage Insurance (LMI) for high documentation loans and means you’re a lower risk to the lender. Try to show the lender that you have enough equity or savings to maintain an LVR below 80%.

How to compare bad credit home loans

When deciding on the best non-conforming home loan to fit your specific lifestyle, there are certain factors that will help determine which loan is best for you.

  • Interest rate. Bad credit home loans generally have a higher interest rate, which is why it's so important to compare home loans to ensure you're getting the best deal.
  • Comparison rate. Always check the comparison rate because it represents the true cost of your home loan. Since you're already paying a higher interest rate, you don't want to pay higher fees.
  • Fees. Another aspect to take into account is the amount of fees that you will have to pay. For instance, does the your potential loan provider have any hidden fees or are they upfront about their extra charges? It's crucial for you to know this information so that you won't be surprised with any additional expenses.
  • Repayments. When selecting the most appropriate lender you must be well versed in the loan repayment schedule. This will allow you to be more organised and know exactly when all of your monthly payments are due.

You also need to know how to manage the bad debt you already have to avoid getting into the same situation again. To manage a bad credit refinance successfully:

  • Keep debt consolidation loans separate. It is possible to refinance your home loan to consolidate bad debts such as credit cards or personal loans so they attract the same low interest rate as your home loan. However, to successfully manage this sort of bad credit refinance, you should keep your refinance loan split so you make separate payments for your home loan and your consolidated debts. Otherwise, you'll be paying your credit cards and personal loans off over 20 - 30 years with your home loan which will drive the total cost with interest up much higher.
  • Don't choose features that will tempt you. If you know you have trouble with managing finances, then features such as a line of credit, which allows you to withdraw up to the value of the equity in your home, may tempt you to spend more. Similarly, if the refinance loan you choose has free redraw facility you may tempted to withdraw the extra repayments.

Get help from a mortgage broker

Mortgage brokers are professionals who specialise in helping borrowers find mortgages. Their services are usually free because they receive a commission from the lender you choose. Borrowers in tough credit situations might find it easier to get finance with a broker's help.

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Applications are subject to approval. Conditions, fees and charges apply. Please note that you need to be an Australian citizen or permanent resident to apply.

Credit services for Aussie Select, Aussie Activate and Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 (“Aussie”) and its appointed credit representatives, Australian Credit Licence 246786. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133 (“RMG”). RMG is a wholly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945. Credit for Aussie Activate products is provided by Pepper Finance Corporation Limited ACN 094 317 647 (“Pepper”). Pepper Group Limited ACN 094 317 665, Australian Credit Licence 286655 acts on behalf of Pepper. Credit services for Aussie Elevate products are provided by AHL Investments Pty Ltd ACN 105 265 861 Australian Credit Licence 246786 (“Aussie”) and its appointed credit representatives. Aussie is a trade mark of AHL Investments Pty Ltd ABN 27 105 265 861. Credit and any applicable offset accounts for Aussie Elevate are issued by Bendigo and Adelaide Bank Limited ABN 11 068 049 178 AFSL / Australian Credit Licence 237879.

Aussie is a trade mark of AHL Investments Pty Ltd. Aussie is a subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124. ©2020 AHL Investments Pty Ltd ABN 27 105 265 861 Australian Credit Licence 246786.

By submitting this form, you agree to the Aussie privacy policy.

After entering your details a mortgage broker from Aussie will call you. They will discuss your situation and help you find a suitable loan.

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6 Responses

  1. Default Gravatar
    sarahApril 6, 2014

    Hi Team at we would like to know if your able to help us out. we would like to refinance but have amounts on our credit file under $1000 each. if we can refinance we are prepared to pay these out in full. we find it funny that you have fox symes as a recommendation for bad credit home loans as i have previously spoken with them and they have said that they dont do bad credit finance and cant help us. thanks sarah and scott

    • Avatarfinder Customer Care
      MarcApril 7, 2014Staff

      Hi Sarah,
      thanks for the question.

      Unfortunately we don’t offer any home loans ourselves, but rather allow you only to compare different products available in the market. I’d recommend comparing the different bad credit home loans in the marketplace and then contacting any lenders who have products you’re interested in. You might also want to consider credit repair services.

      I hope this helps,

  2. Default Gravatar
    gumbaJanuary 25, 2014

    i got the pre approvel from a bank and then got declined because we fell behind on our home loan by 2 months christmas period , i will have the money to bring it up to date in next week,we have $150k equity in our home (valued at $250k) and would like to consolidate our credit card,cars and bike loan in total $ lost to wich bank we should go to and to who would accept us

    • Avatarfinder Customer Care
      MarcJanuary 28, 2014Staff

      Hi Gumba,
      thanks for the question.

      Unfortunately I’m not able to suggest specific lenders who you should apply with. I’d recommend contacting different lenders to find out about their debt consolidation loans and if you’re eligible to apply.

      I hope this helps,

  3. Default Gravatar
    paulJanuary 6, 2014

    We have sold our house and are buying another house the buying price is $327,500 applying for a loan of $85,000 have been knocked back from a default on a gas and electricity bill we were not aware of from 2010 it is paid can someone please advise best solution I have a broker how isn’t returning calls or replying to messages sent am today appreciate any assistance regards Paul

    • Avatarfinder Customer Care
      MarcJanuary 7, 2014Staff

      Hello Paul,
      thanks for the question.

      I’m unable to give personal advice, but generally speaking there are some lenders who do grant loans to those with defaults on their credit file. It may be a good idea to carry out a search of these lenders, and compare them using their fees and interest rates. It may also be a good idea to seek the services of a different mortgage broker. You can compare bad credit lenders here.

      I hope that helps,

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