How to Determine Interest Rates on Subprime Loans

Subprime loans are given to those who cannot fit the requirements for prime rate financing but do qualify for more strict terms. Most people who qualify for these loans are people who have low credit scores, though some very low scores will not qualify for subprime loans. Borrowers who would like to purchase a home or other assets with lower credit scores pose a larger risk to lenders, which causes interest rates to be higher.

Difficulty: Moderate

Instructions

1. Determine what your credit score is and if you qualify for prime rate financing or subprime rate. Many borrowers qualify for prime rates through some lenders, which is why it is often helpful to work with a lender offering both types of loans. Credit scores under 600 generally are considered to be low, but some may fall into prime loan rates, depending on the lender's requirements.

2. Realize that subprime lenders select the interest rate they will charge to borrowers based on the company's lending criteria, which often changes from one organization to the next. Lenders base these rates on the borrower's credit score and on a smaller down payment, with the lower these numbers, the higher the interest rate.

3. Find out what current interest rates are from quality lending websites. These average rates are often for those with good credit with standard prime loan financing. Lenders charge between two and four percent more than the average rate you will find offered to good or better borrowers.

4. Apply for a subprime loan to determine the interest rate available to you from the lender. Since these rates change per lender and per borrower, the only way to know for sure what your subprime rate charge will be is to contact a lender and ask for a quote. Most often if you know your credit score, they can provide you with an estimate of the subprime loan's interest rate.