Subprime loans are the only hope left for those with exceedingly poor credit. Credit scores cannot reach the highest levels even if you clear all your debts in a day. It is a gradual process and takes its own time to recover.pressmaster / 123RF Stock Photo
Many a times you get into a situation when you need to take a loan urgently, but the lenders reject you because of your bad credit score. If you have a bad credit score and you need to take an urgent loan, then you are only left with an option to take “subprime loans “. This has become truer looking at the current situation where the recession and economic crisis have resulted in massive losses and people are forced into a poor credit situation because of job loss, salary cuts or the business losses. To get loans from lenders has become tougher. Lenders suffer huge losses and in order to protect themselves from any further losses they want stringent lending norms, which mean that only those who have a good credit can qualify them.
The current situation has led to the emergence of a new class of lenders referred to as the subprime lenders who specialize in bad credit lending.
What are subprime loans?
Subprime loans are same as other loans. The only difference in subprime loans and other loans are in acceptance level, the person applying for normal loans with bad credit history gets rejected, but in subprime loans they qualify no matter what their credit score is. The subprime loans charge very high interest rates on the loan amount with many terms and conditions regarding nonpayment of loans. These loans have become common in use as they have a growing rate of 20 percent a year since 1993 to 2002. Many big companies like Wells Fargo, Americus and Citi group, deal with these loans.
There are thousands of applications for subprime loans for bad credit every year. As per the report published by research agencies in the USA, there are many independent mortgage companies who deal around 61% of subprime loans, which means that a major chunk of the business they do is from the subprime loans. SASCO, Americus, century and Lehman, top the lists. There are many companies like WMC mortgage, nova star mortgage, and Fremont investments who have increased their business by 300 percent. Many foreign banks like Deutsche bank, UBS Warburg are also getting indulged with the subprime loans business
These all are beneficial for borrowers who have a bad credit history. But there are many complications and many terms and conditions regarding repayment of a loan which may confuse the borrower to choose the company where they can apply for these loans.
Subprime loans are not going to go
Subprime loans business will stay in the market. A borrower who has a very bad credit history can also apply for these loans.
There was a time when a person with bad credit history would never imagine that he will get a loan to purchase a house. But now, he can apply to get subprime loans to fulfill all his needs. These loans are beneficial for those who have frequent liens, bankruptcy, late payments, judgments or any other unhealthy remark on their credit reports. People below credit line can also apply for these loans and rebuild their credit.
Understanding subprime loans better
Mortgage loans are quite flexible and most common in use as its terms and conditions are easier and give you better deals. But the only drawback is you have to qualify the criteria of getting a loan. But in case of subprime no credit check loans, there are no criteria for qualifying loans, but you are not given the best deals and low interest rates, you will be given credit and a chance to build your new credit history.
Subprime loans charge high interest rates as they provide you a loan when no one gives you loans. If you fail to pay the loan amount you will increase your debt and spoil your credit score, therefore, before applying for subprime loans, make sure you can fulfill their terms and conditions in order to avoid further problems.
High purchase points are charged on the subprime loans which are given by borrowers. These high purchase points can be as more as 3 to 5 points than the normal mortgage. If you pay higher down payments, then you may get rid of high purchase points, but if you don’t have big amount for a down payment, then you have to pay the purchase point to start the loan process.
When you take a subprime loan, you need to assure that you take it from the lenders who have the reputation and do a lot of business. These can be one of the ways of securing yourself against any frauds.