Subprime or non-prime loans are available to people who are not able to meet the strict rules in qualifying for a prime loan. The interest rate of a subprime loan will depend on the credit risk of the person who is trying to avail themselves of the loan. The interest rates vary for every company. If a person does not qualify for a prime loan, he will receive an offer to apply for the subprime loan. The interest rate in this kind of loan is considerably higher than other kinds of loans. The low credit scores of the people who avail this loan is the reason why the interest rate is higher. It is therefore wiser to compare the interest rates of the subprime loans offered by different lending companies.
Here are some of the steps that you have to take if you want to compare the interest rates of different subprime loans:
- Chart it all down. Make a list of all the expenses that you will make when you apply for a subprime loan. Do not make an exemption no matter how small the cost will be. The list should contain the following: the credit report fee, application fee, start-up fee, interest rate, origination fee, escrow account, recording fee, participation fee, program fee, insurance policy and closing fee. Make an Internet search to find out all the other fees that you have to pay.
- Know your score. Determine your credit score. If you already know your credit score, you will find out instantly if you qualify for a subprime loan.
- Find a lending company. Conduct an Internet search to find out the different lending companies in your area. Another option that you can look into is to scan the newspapers for different lending companies. Select at least three companies that have low interest rates for the subprime loans. Contact the three lending companies to ask for a list of the expenses of a subprime loan. Make it a point to inform the lender your credit score is order to get an almost perfect estimation of the fess that you have to pay. After making inquiries, ask for a quote from the lender whose company will offer you the loan. Ask for an estimate of the interest that you have to pay, in case you acquire a loan. Ask for clarifications about the terminologies that you do not understand. Stay away from the lending companies that present hidden charges. The things that you have to watch out for are insurance policies that you may only purchase on a single premium, high origination fees and high interest rates, policies that require you to make payments for the interest only, high closing fees, excessive participation fees and high application fees.
- Begin the elimination process. Using your list as a guide, calculate the total amount of expenses of the subprime loans offered by each company. Compare the outcome of your calculations to determine which company offers the best interest rate that you can live with.
The interest rate of a subprime loan will depend on the credit risk that you present. It is therefore important to determine your credit score. If you use this list as a guide, you can make sure that you choose the lending company that can give you the privilege of a good interest rate.