The term sub-prime refers to a certain lending market sector whose customers don't qualify for prime market rates. This lack of ability to qualify is usually the result of a bad credit history or limited credit. Those who are sub-prime customers are charged a higher rate because they are considered higher risk. The higher the risk the higher the interest rate will likely be each state has their own maximum annual interest rate.



As with any industry there will be someone who recognizes a specific demand in the marketplace and have been successful by filling that supply. In the past few years traditional lenders have been denying many potential customers. It is approximated that about 25% of the nation's population fits into the category with a credit score less than seven hundred.

Considering an applicant's credit history is considered high risk many sub-prime companies demand security in the form of collateral. This collateral can be a mortgage loan, vehicle loan, furniture loan, and credit cards that are secured by an initial deposit. If the company registers a lien against the listed asset the company can repossess it and use it toward the balance owed.

For many with credit problems sub-prime finance companies can provide you with a chance to re-establish your credit to become a prime customer in the future. It is important to ask the company if the loan will be reported to the credit bureau companies because if they don't then other companies won't be able to see your payment history. If lenders can't see your positive recent payment history then they won't be able to see that you have begun to re-establish your credit with another lender.

High risk in almost any industry means more expensive. If you've had a few car wrecks then you are a high risk driver with high car insurance. Bad credit and you are a homeowner with a high interest mortgage. When it comes to sub-prime loans the interest rates that are offered are generally 0.1% to 0.6% higher than the prime interest rates.

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