Subprime Loans

The term Subprime Lending or Subprime Mortgage or Subprime Loans become very much popular since last 2 years. So it is very important to know that What i Subprime Loan & How actually it works?

Definition: Subprime Loans -

- Wikipedia: - Subprime lending (near-prime, non-prime, or second chance lending) is a financial term that was popularized by the media during the "credit crunch" of 2007 and involves financial institutions lending to borrowers who do not meet prime underwriting guidelines. Subprime borrowers are more likely not to pay the money back, such as those who have a history of not paying loans back, those with a recorded bankruptcy, or those with limited debt experience.

Although there is no standardized definition, in the US subprime loans are usually classified as those where the borrower has a FICO score below 640. Subprime lending encompasses a variety of credit types, including mortgages, auto loans, and credit cards.

- Investopedia: - A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are often turned away from traditional lenders because of their low credit ratings or other factors that suggest that they have a reasonable chance of defaulting on the debt repayment.

Explanation: -

Again, According to Finance Gurus, This is the bad type of loan. Because the Lenders will charge you very high interest rate on this Loan.

However, Subprime Loan is still a good option if you are going to use it to repay your ultra-high interest rate loans such as Credit Card Loans.

Otherwise, This Loan is not in any way a Good Loan because you already have a Bad credit score and on the top of this the Lenders are charging you much higher interest than the prime Loans. So your chances of default rises several folds.

Finance Gurus don’t suggest to take these loans. Because Poor Credit Score means you are already a Bad borrower than why to take more loans and worsen your Credit Score More?…..