Refinancing With a Default: Can You Still Get Approved?

Getting knocked back for refinancing because of a default is disappointing, especially when you thought your current financial position was strong enough. A default on your credit file can make lenders cautious, but it does not automatically disqualify you from refinancing.

Many Australians successfully refinance despite having defaults on their credit file. The key is understanding what lenders look for, which lenders are more flexible, and whether the default itself should even be there in the first place.

Got a default on your credit file? Lodge it with Default Gone right here, or call us on (02) 5502 7025. $399 flat per consumer per default. We do not guarantee removal — outcomes depend on the facts of each case — but we will prepare and lodge the dispute properly.

Can you refinance with a default?

Yes, you can refinance with a default on your credit file. However, approval depends on several factors including the default amount, how old it is, whether it has been paid, and your current financial circumstances.

Most major banks and many smaller lenders will consider refinance applications from borrowers with defaults, but they will assess the risk more carefully. The impact on your application depends on:

• Default amount – smaller defaults (under $1,000) carry less weight
• Age of the default – older defaults have less impact than recent ones
• Payment status – paid defaults are viewed more favourably than unpaid ones
• Your current financial position – income, expenses, equity and repayment history
• Number of defaults – multiple defaults increase the risk assessment
• Type of debt – utility defaults may be viewed differently to credit card defaults

How lenders assess defaults during refinancing

When you apply to refinance, lenders will obtain your credit report and assess any defaults alongside your current financial position. Here is what they typically consider:

Default age and payment status

Paid defaults that are over 12 months old generally have minimal impact on refinancing applications. Recent defaults or unpaid defaults require more explanation and may limit your lender options.

Many lenders have specific timeframes:

• Some accept applications immediately if defaults are paid
• Others require 6-12 months since the default was satisfied
• A few may consider unpaid defaults if there are valid reasons

Default amount thresholds

Most lenders have dollar thresholds for defaults:

• Defaults under $500 often have minimal impact
• Defaults between $500-$1,000 may require explanation
• Defaults over $1,000 typically trigger closer scrutiny
• Multiple small defaults can be viewed as seriously as one larger default

Your current equity position

Refinancing often involves lower loan-to-value ratios than purchase loans because you have existing equity. Strong equity can help offset the impact of defaults:

• LVR under 70% – defaults may have minimal impact
• LVR 70-80% – paid defaults usually acceptable
• LVR over 80% – unpaid defaults may cause issues

Lender types and default policies

Different lenders have varying approaches to defaults:

Major banks

The big four banks (Commonwealth, Westpac, ANZ, NAB) generally have stricter default policies but may consider:

• Paid defaults over 12 months old
• Small unpaid defaults with valid reasons
• Strong current financial position offsetting older defaults

Regional and smaller banks

Banks like Bendigo, Bank of Queensland, and credit unions may be more flexible:

• Case-by-case assessment approach
• Willingness to consider circumstances behind defaults
• Focus on current repayment capacity

Non-bank lenders

Specialist mortgage providers often have the most flexible default policies:

• May accept recent or unpaid defaults
• Higher interest rates to reflect increased risk
• Focus on exit strategy rather than credit history

Strategies for refinancing with a default

Check your credit file first

Before applying anywhere, get a free credit report and check:

• Whether all defaults are correctly listed
• If paid defaults show as satisfied
• Whether default amounts are accurate
• If you recognise all listed defaults

Some defaults may be incorrectly listed or contain errors that could be challenged or corrected.

Prepare a strong application

When refinancing with a default:

• Provide a clear explanation for the default
• Show evidence the default has been paid if applicable
• Demonstrate strong current financial management
• Include recent payslips, bank statements, and expense records
• Highlight any improved circumstances since the default

Consider timing

If your default is recent or unpaid, consider whether waiting might improve your chances:

• Pay the default if possible before applying
• Wait 6-12 months after payment for better options
• Use the time to strengthen other aspects of your application

Use a mortgage broker

Brokers who specialise in non-conforming loans can:

• Identify lenders who accept your specific situation
• Structure your application to highlight strengths
• Manage the process with lenders who are familiar with defaults
• Save time by avoiding lenders who will automatically decline

When the default should not be there

Before accepting a refinancing rejection, check whether the default was correctly listed. Some defaults can be challenged if they were:

• Listed without following proper notice procedures
• Recorded with the wrong amount or details
• Listed while you were in an accepted hardship arrangement
• Related to a disputed debt that was not properly resolved
• Listed when the 60-day minimum period was not followed

Common default listing errors

Wrong amount: Defaults sometimes show incorrect dollar figures, which may be grounds for challenging the listing.

Hardship periods: If you were in an approved hardship arrangement when the default was listed, this may not have been appropriate.

Identity issues: Defaults that do not belong to you due to identity errors should be corrected immediately.

Utility defaults: Energy and water provider defaults are sometimes listed incorrectly due to billing disputes or account transfer issues.

What to check before applying

• Obtain your credit report and review all defaults for accuracy
• Check default payment status – ensure paid defaults show as satisfied
• Review default circumstances – gather documentation about what led to the default
• Calculate your equity position – know your current loan-to-value ratio
• Assess your financial strength – income stability, expense management, savings
• Research lender policies – understand which lenders accept your situation
• Consider timing – whether waiting might improve your chances
• Prepare explanations – clear, honest explanations for each default
• Gather supporting documents – evidence of payment, changed circumstances, financial stability

Alternatives if refinancing is declined

If mainstream refinancing options are limited:

Specialist lenders

Non-conforming lenders may offer:

• Higher interest rates but approval despite defaults
• Shorter loan terms initially with option to refinance later
• Focus on property security rather than credit history

Stay with current lender

Sometimes negotiating with your existing lender provides:

• Rate reductions without a full credit assessment
• Product switches to better loan features
• Avoiding the need for a new application altogether

Wait and improve

Using time to strengthen your position:

• Pay off the default if still outstanding
• Reduce other debts to improve debt-to-income ratio
• Build savings to increase deposit or reduce borrowing
• Allow time for the default to age and have less impact

How Default Gone helps

Default Gone helps Australians challenge unfair, incorrect or unlawfully listed defaults. We collect the relevant information, prepare the dispute, lodge it with the credit provider and/or credit reporting body, track the response and explain the outcome in plain English.

The standard Default Gone service is $399 per consumer, per default (limited launch pricing — normally $399). There are no stage fees, no success fees and no surprise invoices. The fee covers the work performed, not a sought outcome.

If a default is preventing your refinancing application from proceeding, it may be worth checking whether the default was correctly listed before accepting the rejection. See how the process works or view our flat-fee pricing.

Next steps

Refinancing with a default requires careful preparation and realistic expectations. Start by understanding exactly what is on your credit file and whether all defaults are accurate and fairly listed.

If your defaults are correct but you have strong equity and current financial position, many lenders will still consider your application. The key is finding the right lender and presenting your application effectively.

Disclaimer

Default Gone is not a law firm and does not provide legal or financial advice. We do not undertaking that a default or judgement will be removed. Outcomes depend on the facts, documents and response from the credit provider, credit reporting body or relevant legal pathway.

Frequently asked questions

How long after a default can I refinance?

You may be able to refinance immediately if the default is paid and you meet other lending criteria. However, some lenders prefer 6-12 months since the default was satisfied. Unpaid defaults are more challenging but not impossible with specialist lenders.

Will one small default stop me from refinancing?

A single small default (under $500) that is paid and over 12 months old will usually not prevent refinancing with most lenders. The impact depends on your overall credit file, current financial position, and loan-to-value ratio.

Should I pay my default before applying to refinance?

Paying your default before applying generally improves your chances and opens up more lender options. However, if the default amount is disputed or incorrectly listed, it may be worth reviewing the default first rather than paying it immediately.

Can I refinance with multiple defaults?

Multiple defaults make refinancing more challenging but not impossible. Specialist lenders may consider applications with several defaults, particularly if they are older, paid, or relatively small amounts. Your current financial strength becomes more important with multiple defaults.

What if my default was listed incorrectly?

If your default contains errors such as wrong amounts, incorrect dates, or was listed without proper procedures being followed, it may be worth challenging the listing. Correcting an incorrect default can significantly improve your refinancing prospects.

Do utility defaults affect refinancing differently?

Utility defaults (electricity, gas, water) are generally viewed similarly to other defaults, though some lenders recognise these can result from billing disputes or account issues. The same factors apply: amount, age, payment status, and your current financial position.

How do I explain my default to a lender?

Provide a clear, honest explanation of what caused the default, what steps you took to resolve it, and how your financial circumstances have improved since then. Include supporting documentation such as payment receipts, evidence of changed circumstances, or proof of improved financial management.