Difference Between Subprime & Prime Loans

When you apply for a loan, approval depends on several factors, including credit, employment history and income. After considering all factors, some borrowers will be classified as subprime instead of prime. Prime loans have better interest rates and are easier to obtain for someone with good credit. Subprime loans have higher interest and usually worse finance terms.

Types

Subprime and prime lending classifications apply to mortgages, car loans, personal loans, secured loans and credit cards.

Effects

According to Milwaukee Mortgage, a subprime interest rate can cost $3,500 more per year for a $100,000 home loan than a prime rate.

Down Payment

Down payments are often required for subprime borrowers. This applies to most types of loans, but usually not personal loans or credit cards.

Considerations

A subprime borrower might have to put down up to 20 percent of the purchase price of a home. Someone with a prime rate can typically buy a home with 3 percent down.

Significance

According to bankrate.com, most lenders consider credit scores between 620 and 850 eligible for prime rates.

References

• Milwaukee Mortgage: Difference Between High-Risk Loans and Prime Loans
• Bankrate.com: High Credit Score Can Save You Plenty
• Sub-prime-loan.com: What is a Subprime Loan?