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What Is a Subprime Loan?

Some people do not have the qualifications for a regular loan. They may have a rocky credit history, or they do not have regular means of employment—all “red flags” to typical lenders.

Despite this, these people can still apply for a subprime loan. This type of loan is open to those who are not considered “prime” lending candidates.

However, because of the risk involved in these loans, subprime lenders will often charge a higher interest rate than one would find in loans offered by a bank. This is only fair, and possibly, the last resort of a person in desperate need of a loan.

Subprime lenders recognize that there are many valid or understandable reasons behind a low credit rating. For example, the person may have been the victim of an unexpected job loss, or his financial reserves were sapped by a long term illness. Under these circumstances, he may be unable to keep up with credit payments, and the resulting skyrocketing interest rates. Subprime loans will enable him to get his financial situation back under control, pay off other loans, or at least, improve credit history.

There are many subprime loans available. It is advisable to look around and compare packages, read the fine print carefully, and keep a wary eye out for those who will jack up interest to unfair proportions.

It is also possible to negotiate with subprime lenders, and look for flexible payments and a relatively good interest rate. It is advisable not to stretch a loan over five years. Since financial circumstances can improve dramatically within that time frame, grab the first opportunity to pay off the loan.

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