How to Qualify for a Subprime Loan
When you don't qualify for a conventional loan because of a low credit score, seeking a loan in the subprime market may be an option. It is easier to qualify for a subprime loan because qualifications other than credit score are taken into consideration. Here's what you need to do to qualify for a subprime loan.
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Things You'll Need
- Driver's license
- Social Security card
- Bank statements
- Tax returns
- Proof of income
Instructions
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Know your credit score. You should qualify for a subprime loan if your credit score is in the low 600s.
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2
Show proof of income with copies of paycheck stubs, W-2 or W-4 forms and 1099 forms. Some lenders also may require a copy of the most recent two years' of federal income tax returns.
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Prepare copies of your bank statements to show any asset reserves you may have.
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Produce identification. All lenders require a copy of your driver's license and Social Security card to begin the loan application process.
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Gather your monthly bills. The amount you pay every month for expenses such as utilities and car payments will be used when calculating your debt-to-income ratio for your subprime loan.
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Tips & Warnings
Expect to pay a higher interest rate. If your credit is not quite poor, but not good either, expect to pay two or three points above the prime interest rate.
Do your own calculations to make sure you can afford the payments
Be sure the subprime loan for which you are applying compounds interest yearly. Some subprime lenders compound interest daily (like a credit card) resulting in significantly larger payments than if the interest is compounded monthly.
Don't enter into a subprime loan agreement without reading the fine print or you could face a steep increase in monthly payments or some other similar surprise.
