Michael Emilio

First off let’s define a prime rate. Prime rate is the interest rate that a commercial bank will charge to their customers that they consider most creditworthy. These customers are generally large corporations. Mortgage rates and consumer loan rates are generally higher than the prime rate, but exceptions occur at times.

Subprime (also known as sub-prime, B-Paper, B-tier, non-prime, near-prime, special finance, second chance lending) customers are those that do not qualify for prime rate loans due to a blemished credit history. These subprime loans have a higher interest rate to compensate for the increased risk. The higher the interest, generally the higher the risk. Know that these additional percentage points of interest can add tens of thousands of dollars of extra interest payments to the life of your loan. Don’t feel discouraged to obtain a subprime loan if the money is meant to pay off a higher interest debt and you have no other means of paying.

If you fall into the subprime category, make sure to shop around for the best rate. The exact amount of interest that you will be charged for a subprime loan is not set in stone. If you go to different lender, they will most likely not value your risk in the same way. What this means to you as a subprime loan borrower is that you have the opportunity to obtain a loan with a better rate by checking with different lenders.