The Pros and Cons of Subprime Loans

The Pros and Cons of Subprime Loans

Making a big financial step often depends heavily on whether you can get a loan. If your credit score isn’t as good as it could be, that can be tough to accomplish. Thanks to subprime loans, though, it could be possible to get that much needed loan.

The Pros and Cons of Subprime Loans

Pros

Easy Approval

Usually a person is turned down for a loan because they have defaulted on a loan before or they have outstanding debt. Banks and lenders aren’t willing to take a risk on someone if they believe there is even just a small chance the borrower won’t make their payments.

Fortunately, in the subprime market, your credit score doesn’t have to be perfect. Subprime lenders will still approve you for a loan.

Usefulness

Subprime loans are a great way for people to pay off other debts. Having outstanding debt hurts your credit score, but a lower score isn’t a problem with subprime loans. Borrowers can get a loan, use it to pay off their debt, then make payments on the subprime loan on time. With the debt gone, they can now work toward improving their credit score.

In a way, subprime loans can potentially be a gateway toward better credit.

Still struggling with fixing your score? Here are some other tips on how to improve your credit.

Cons

Higher Costs

Subprime loans are a higher risk than prime loans, as lenders are taking a chance on someone who has a history of bad credit. This means that borrowers in this market are seen as more likely to default on their loan and therefore pose a higher risk. Because of that higher risk, interest rates are also higher so the lender has some cushion in case of a default.

Processing and other fees will also be higher with a subprime loan. Lenders want to collect more money upfront in case of default.

Income Demands

While subprime lenders will be more understanding of a borrower’s credit score, they will be tougher on their income and cashflow. A borrower must be able to prove they have sufficient income or cashflow that will allow them to make their monthly payments. If they can’t provide proof, they will likely be turned down.

Do you have any questions about subprime lending? Let us know! Give us a call today at 1-866-991-4885.


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