Introduction to Subprime Loan

You have probably heard of a subprime loan but are not sure what it is. Simply put, it is a type of loan given to people who do not qualify for loans with prime or standard rates. Like the name suggests, the loans are given at a rate above prime. Often times, banks and other lenders turn down subprime borrowers because they have low credit rating which means they are more likely to default on repayment. The loans are based on compensating factors. If you have a low credit rating, you can compensate for it by putting down a large deposit and proving that you have a source of income and vice versa.

If you are thinking of applying for subprime credit, it is important to know that they attract higher interest rates compared to other types of loans. The reason for this is that lenders consider people who apply for subprime loans as high risk. Applicants usually have low credit ratings and do not pay their bills on time which make them more likely to default on loan repayment. If you have a high interest debt, for example a credit card debt but you do not have other means of payment, you can apply for subprime loan.

Different lenders charge different rates of interest on subprime loan. The reason for this is that lenders value borrower risks’ differently. Accordingly, it is necessary to research and compare rates before submitting your application to a particular lender. This will help you choose a lender with practical rates.  It is imperative that you do not settle for the first lender you come across. You must shop around before making your decision. Though you may apply with more than one lender to increase your chances of getting the loan, it is best to work with one lender at a time.

When researching, look for information necessary to make your case for the loan approval. Different lenders ask for different documents. However, most if not all will ask for proof of source of income, a bank statement and receipts to show that you pay your rent and utility bills on time. Make sure you provide copies of car loan statements and credit card bills to show that you have been making timely payments. The aim is to show the lender that the bad habits such as delaying and missing payments are in your past.

If the application is accepted, you will be required to sign the necessary paperwork. Though you may be desperate for the loan, it is important that you do not sign any documents without reading the fine print. To avoid nasty surprises later, you should avoid signing documents before reading and understanding the content. Trust your gut and only settle for a lender that you are comfortable with.
If you have a low credit rating, you may not qualify for a standard loan. However, you can apply for a subprime loan. Individuals who apply for subprime loans are considered high risk hence they are charged high interest rates. When applying for the loans it is necessary to compare the rates of different lenders.