Refinance Student Loans With Bad Credit

If you are wondering whether refinancing student loans with bad credit are possible? The answer is yes! Know the lenders who help you in this process.

Updated by Chandni Agarwal on 21st October 2020

While trying to tackle the rise in tuition costs you need to first explore the free financial aid options available. If you still have additional costs to cover or you don’t qualify for scholarships then you can start exploring other options such as student loans. Now comes the next big question - Which are the best student loans for me? To identify that you have to explore all the available options. It is important to understand that the best student loan is not just the one that covers the costs incurred but also the one that is easy to manage. If your student loans are hard to manage you should consider refinancing your student loans, this is a great way to make your student loans more manageable.

Refinance student loans with bad credit are also provided by some lenders. The borrower should have a fair knowledge about all the factors before taking any apt decision.

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Private lenders who refinance student loans with bad credit

The qualification criteria for the borrowers are very strict by the lenders which makes it impossible for the borrower with bad credit to refinance student loans. There are high chances of rejection, or other options will end up you having high-interest rates or a need a co-signer with very good credit.   

Once you improve your credit score, you can always apply for refinancing again, as the high-interest rate is not ideal. And with some specified number of on-time payments in a row, you can have a co-signer release which is provided by some lenders.

For people with bad credits, they also have some lenders in their options. 

Below is a table that describes the list of lenders who refinance for bad credit. 

    Lender Minimum Credit Score Needed to Refinance
Earnest 650
LendKey 680
Credible Soft credit check performed

Earnest can be said as one of the most consumer-friendly lenders. They don’t have any set income requirements, which is beneficial for people with bad credits, even if the minimum credit score requirement is 650. No application fees, origination fees, prepayment fees are charged by Earnest. You should have a consistent income or a signed job offer for employment starting within six months.   

Unemployment protection is also provided by Earnest, the only offer it doesn’t provide is the option to get a cosigner. Earnest is not available in every state, so you have to visit their website and confirm whether you are eligible or not.

Learn more about Earnest Student Loan Refinancing

For people with bad credit, another very great option is to refinance with LendKey. A minimum credit score of 660 and an income of $24,000 (or $12,000 with a cosigner) is required by LendKey. No application fees, prepayment fees, or origination fees are charged by LendKey. They also provided unemployment protection. 

To be qualified for refinancing student loans, you should be a graduate with at least an associate degree. A cosigner and a cosigner release are allowed by LendKey.

Learn more about LendKey Student Loan Refinance

Credible is also another refinancing lender for people with bad credit. Unlike other lenders, Credible is more of a third party online loan marketplace. Like you can simply fill out a form on Credible’s website and they will send you estimates from multiple lenders that use their platform.

No minimum credit score or income requirements are set by Credible’s as they represent multiple lenders. It can also be one of the best options for people with bad credit because they often find refinancing options for people who have been turned away by other lenders.

Learn more about Credible Refinancing and Consolidation Review

Why a credit score is important during student loan refinancing?

When the money is borrowed to receive a service, when you need it or purchase something from banks or any other financial institution, it is commonly called credit. You can also give a check with credit unions. 

The borrowed money is paid back to the respective institution or banks over an agreed amount of time with a certain interest charge fixed with it. The amount of debt you have taken, the amount of debt you have compared to income, how well you are repaying your loan, these things will decide how bad or good your credit is.

Student loan refinancing will become next to impossible if you have bad credit. And even if you are qualified, refinancing your loan with bad credit will become very overpriced. Whether the borrower is creditworthy or not is decided by the lenders while they perform credit checks and they overview all the different financial variables. 

Your credit score is not important when you receive your first financial aid while you have federal student loans. Lenders will consider your financial status as the main norm for approving someone for refinancing, as soon as the financial aids become older along with life. What do lenders look at when there are determining if you are creditworthy?

1 - Credit history

Your credit history proves your creditworthiness. So making on-time payments will help you have a good credit history which directly affects your credit scores positively. 

Five main factors are considered to check your credit score. They are Credit mix (10 percent), new credit (10 percent), length of credit history (15 percent), credit utilization (30 percent), payment history (35 percent). 

The FICO score scale ranges from low credit score minimums like 300 to a credit rating of 850. Any score under 550 is considered as bad credit by most lenders. If you have a credit score which is above that then you can refinance your student loans. Be it anything like setting terms and interest rates for your loan, or approving the refinanced loan as unsecured or secured, your credit score is considered as the main criteria by lenders.

2 - Profession

When you have bad credit, how much you are earning and where you are employed will be a second big factor in whether you qualify for student loan refinancing. Whether you will be able to pay for your loan payment on time or not is a major concern for the lenders. For lenders, a higher-paying career will be a better option.

3 - Debt to earnings ratio

When you add all your monthly expenses like credit card debt, student loan debt, and car payments as well as your expected monthly mortgage payment and then dividing that number by your gross monthly income, in this way your DTI can be calculated. For example, your debt-to-income ratio will be 40%, if you have a monthly income of $15,000 and monthly expenses from a debt of $6,000. When you want to refinance your student loans DTI will help you with better interest rates.

Looking to refinance your student loans? Find the best student loan refinancing lenders.

Will a Co-signer help?

If a cosigner with a very good credit history is added to your application there are high chances that the lender will approve the application. Earnest, unlike the other lenders, don’t allow the borrowers to apply with a cosigner. 

Once the loan gets refinanced it will appear in the credit report of your cosigner. It will be treated as a part of the cosigner’s debt load. Your cosigner’s score will be shown as negative if you miss any payment and if you will not be able to pay, then it will be paid by your cosigner.

Co-signer release is offered by some of the lenders. If your credit gets approved and you successfully pay a certain number of payments without any fail then you can remove the co-signer. 

Other ways to improve credit score and make student loan refinancing possible

Below are a few points mentioned to improve your credit scores 

  • Try to gain a job that pays better or decrease to the debt you have to balance your debt to income ratio

  • Paying your bills on time can help you have a good credit history. Most refinancing lenders look for borrowers with good credit history

  • Always look for refinancing lenders who perform a soft credit check else your credit scores will drop poorly

  • Aim to have 30 percent or lesser of available credit line to improve your credit scores

It's always good to have better credit scores to borrow a new loan or to refinance them. 

                                            Worried about your college tuition? Learn more about best student loans

Alternatives to student loan refinancing

Refinancing may not be the best move, occasionally. Even if refinancing student loans with bad credit are done with the help of the co-signer if your income is less than your loan balance, then your monthly payments could remain unaffordable.

Depending on your financial situation and the goal you want, consider one of the following options.

1) To make payments more affordable

If you can’t pay your monthly payments easily and you have a federal student loan then signing up for an income-driven repayment plan could be the best option. You can repay the loan in over 20-25 years and you will receive a small bill according to your income. Your balance can be forgiven at the end of the repayment term, but you won’t be saving on interest.

2) To simplify your finances with a single monthly payment

By combining multiple loans with one loan, which can be done with federal student loan consolidation (applicable to federal student loans only) can help you distribute your repayment. Dissimilar, when you refinance with a private lender, your interest rate won’t be lower, but your monthly payment can be lowered by extending your loan term.

Other blogs you may be interested in

What is Student Loan Refinancing?

Minimum Credit Score Needed for Refinancing Student Loans

Refinance Student Loans With A Cosigner