Numerous financial factors can affect your ability to get a loan, including your credit score. If you have good credit and a decent income, you could qualify for a prime loan. Prime loans are usually more affordable and flexible than subprime loans.
However, if you’re someone who has had a few credit issues in the past but has a fairly decent income, you should consider a subprime loan.
Can I Get A Loan As A Subprime Borrower?
While big banks may be rejecting subprime borrowers, you can still qualify for a loan with credit unions and alternative lenders. Many financial institutions, particularly private lenders, are using new and different types of data to assess risk and reliability such as:
- Cellphone bill records
- Utility records
- Bank account records
- Rental histories
These lenders put less emphasis on credit scores, and more focus on the overall financial health of the borrower. As such, subprime borrowers have a greater chance of qualifying for loans and other credit products with subprime lenders.
Borrow Up To $50,000
What Are Subprime Borrowers?
Consumers with “fair” or “bad” credit scores generally fall within the subprime category. These borrowers usually have credit scores that fall below 660. Borrowers with bad credit typically have had issues with paying their debts in the past. As such, they’re generally charged higher interest rates for loans than those with good credit.
While subprime consumers may have had financial issues in the past, they may be financially stable enough to handle the loans they need and want.
What Are Subprime Loans?
Subprime loans are generally catered to borrowers whose credit is considered ‘bad’. Though this can vary by lender, bad credit scores typically fall somewhere below 660. Subprime loans are generally offered by online and private lenders.
Unlike a bank, they base their approval on the borrower’s overall financial health. So while they’re easier to qualify for these loans typically have less flexibility and higher costs.
Types Of Subprime Loans
Subprime loans are offered by B lenders to borrowers with poor credit. They’re easier to get approved for, but they’re also more expensive than traditional loans. Here are a few types of subprime loans available:
While you may not qualify for the best rates, you can still get an affordable personal loan as a subprime borrower, particularly if you apply with a credit union or alternative lender. These lenders have flexible requirements and use your overall financial state to determine your creditworthiness.
With a personal loan, you can borrow up to $35,000 or more with most subprime lenders. Interest rates on these loans can vary heavily with interest rates going up to 47%.
Subprime mortgages are designed for borrowers with bad credit scores. These types of home loans come with higher interest rates and shorter terms compared to prime mortgages, as they’re a bigger risk for the lender.
Also referred to as ‘B lender mortgages’ or ‘private mortgages’, subprime mortgages have far less stringent eligibility requirements, making them easier to get approved for. According to Statista, about 4.7% of mortgage holders in Canada have a poor or fair credit score. Rather than forgoing their dreams of buying a home, these borrowers may have some luck applying for subprime mortgages.
Subprime lenders are able to loosen their qualification criteria because these types of mortgages are not regulated, unlike traditional prime mortgages provided by A lenders. The strict government regulations require prime lenders to enforce tighter rules. But because subprime lenders are not regulated in the same way, they’re free to offer bad credit mortgages to those with less-than-perfect credit who would otherwise be turned down by banks and credit unions.
Like subprime mortgages, a subprime car loan is a type of financing for borrowers with bad credit. Since these types of loans put lenders at greater risk of loan default, the interest rates tend to be higher to offset this risk.
Subprime car loans are collateralized by the car being purchased and can be used to finance both new and used vehicles.
Where Can You Get A Subprime Loan?
|Types Of Lenders||Definition||Approximate Interest Rates||Lender Examples|
|Banks||Major financial institutions like Canada’s Big Five banks offer personal loans. They generally offer the best rates but have strict requirements.||0.5% - 15%||- TD|
- Laurentian Bank of Canada
|Credit Unions||Credit unions are non-profit organizations that are owned by their members. They offer smaller loans than banks but rates are still affordable. Requirements are also more flexible than banks, but you must be a member (of the credit union) to get a loan.||3% or more||- Fusion Credit Union|
- First West Credit Union
- PACE Credit Union
- DUCA Credit Union
- Meridian Credit Union
- Vancity Credit Union
- Ganaraska Financial Credit Union
|Private Lenders||Private lenders are easier to qualify for than banks due to their flexible lending standards. Even those with poor credit may qualify, however, they often charge much higher rates than banks, making them a more expensive option.||8% - 35%||- Loanz|
- Spring Financial
- Consumer Capital Canada
How To Get A Subprime Loan?
Applying for a subprime loan can be stressful, but understanding the process and being prepared can help alleviate some of the stress and help you qualify.
Step 1. Have Your Finances In Order
When you apply for a loan, especially as a subprime borrower, you’ll need to prove to your lender that you are a responsible borrower who will pay their debt on time. Ensure that your bills are paid and pay off any debts that you can before you apply.
While subprime lenders offer loans to those with bad credit, it’s still a good idea to check your credit score before applying. It can help you understand which lenders you have the best chance of qualifying with.
Step 2. Compare Lenders
Before applying with a lender, be sure to get pre-approved with multiple lenders to compare options. Getting pre-approved does not affect your credit and can allow you to choose the best loan for your needs.
Step 3. Apply
Once you’re ready apply with the lender of your choice. Be sure to provide all the required information and documents. Any missing or incorrect information can lead to the denial of your application.
In general, you’ll need to provide proof of identification, income and employment. You may also need to provide your bank statements so they can assess your debt-to-income ratio.
Step 4. Get Funded
If you’re approved for the loan, most lenders will provide you with the funds via direct deposit within a few hours to a couple of days. Some lenders may even provide the funds via e-transfer.
How To Increase Your Chances Of Getting A Subprime Loan?
To boost your chances of getting approved for a loan, follow these tips:
Get Rid Of Short-Term Debt
If you are making payments on an expensive short-term loan, like a payday loan, focus on paying that down first before applying for another loan. The lower your debt load, the better your chances of getting approved for another loan in the future.
Do some comparison shopping with various lenders to see what types of loans you may be qualified for. Take the steps to get pre-qualified with a handful of lenders to find the best offer.
Clear Your NSF Transaction History
If you’ve had a few NSF transactions over the recent past, consider waiting until you have at least 2 or 3 NSF-free months before applying for a new loan.
Consider A Secured Loan
Backing your loan with collateral can increase the odds of loan approval and even help you get a lower interest rate. Secured loans backed by an asset of value are less risky for lenders, so they’re easier to get approved for and come with lower rates. Just keep in mind that if you default on your loan, you risk losing your asset, so make sure you keep up with your payments.
Build Good Credit
One of the best ways to increase your odds of loan approval with an affordable rate is to improve your credit score. This can take a few months, but the rewards will be worth the time and effort. To build good credit, make sure you pay all your bills on time, get rid of high-interest debt, and keep your credit card bills low.
It’s hard to guarantee whether or not you’ll be approved for a loan if you’re in fact part of the subprime consumer category. However, more and more lenders are putting less emphasis on credit and more on your overall financial health, which can help you qualify, even as a subprime borrower.