A subprime loan is a mortgage loan that carries a higher interest rate than a bank or other lending institution’s best available rate. On average, a subprime loan carry an interest rate that is 0.1% to 0.6% above prime rate. Sub prime loans are offered to borrowers with a FICO score between 520 and 619 or for those who lack sufficient equity or collateral to qualify for an A-paper loan. While this credit score certainly isn’t the best, (a 680 FICO and above is considered good, while a 720 or above is considered great) it still allows a borrower to find a mortgage loan, home equity loan or other loan type.
Why Do Subprime Loans Carry Higher Interest Rates?
A subprime loan has a higher interest rate due to the fact that the lender sees the borrower as a higher risk. The borrower’s lower FICO score or low equity in their current home signals to the lender that they are more likely to default on their loan. For these reasons, subprime personal loans and subprime debt consolidation loans have a higher interest rate.
Subprime Loan Rates
The biggest mistake that people with poor credit make is to start out by looking for the best secured subprime loan they can find. Instead, they should search for the best loan rate that they qualify for. Begin with a mortgage broker, bank or credit union and see what they offer based on your financials. Even if you don’t qualify with them, they will often have a close relationship with a California subprime mortgage lender.
Get Quotes From Several Lenders
Each lender will define sub prime home equity loans and subprime home improvement loans in slightly different ways. One lender may have a product that qualifies you for a slightly better rate or terms. Remember: a lender is not required to tell you that if you kept looking, you might find a lower interest rate for your subprime mortgage loan.
California Subprime Loans
If you are searching for a California subprime loan, it helps to know your credit score. Armed with only this, you may be able to get unofficial rates and terms from several California subprime lenders. This also allows you to take the first steps towards your loan without having creditors making credit report inquiries. Note: Inquiries for home and auto loan within a 14 day period are supposed to be viewed as a single inquiry.