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Subprime mortgages
Subprime Borrowing Explained

If you are a borrower with a poor credit history or if you are self-employed or on a short-term contract, you may not be able to obtain loans at a good interest rate. If, however, you are left with little choice, desperately need finance, and are prepared to endure a high rate of interest, you can consider taking out a subprime mortgage, a subprime loan, or some type of subprime borrowing.

Subprime borrowing and lending is risky business for both lenders and borrowers alike. Before you proceed with subprime borrowing, it may be a good idea to consult a subprime broker. Subprime brokers have access to information on a variety of subprime loans and can give you advice on all the subprime borrowing options on offer, many of which are not available directly to the general public.

Different Types of Subprime Loans

You may need a subprime loan if you have been declared bankrupt in the past, have fallen into mortgage or rent arrears. There are many different types of subprime borrowing available, but the most common are:

  • subprime mortgages

  • subprime automobile or car loans

  • subprime credit cards

Main Subprime Lenders and Loan Providers

Traditionally, the majority of mainstream banks and financial institutions will turn you down if you have a bad credit history. These days, however, many banks have set up specialist subprime divisions dedicated to dealing with subprime borrowing and subprime loans.

Subprime borrowers can also approach specialist financial companies, particularly online loan providers, who are prepared to work with borrowers with bad credit by offering them subprime mortgages and other subprime loans. These subprime loans come with strict conditions and penalties including high interest rates.

Subprime Mortgages

If you are a subprime borrower with a subprime mortgage, you are likely to be charged exorbitant interest rates. However, if you shop around, you may be able to find a range of fixed, capped, discounts, trackers, and flexible subprime mortgages to suit you. Two main subprime mortgages include:

  • Interest-only mortgages where you pay the interest only and not the capital for a period of time.

  • Initial fixed rate mortgages that quickly convert to variable rates.

Subprime Car Loans

Besides a higher interest rate, subprime automobile or car loans may also come with prepayment and other types of penalties if you choose to pay off the loan earlier than initially agreed.

Subprime Credit Cards

If you are a subprime borrower using a subprime credit card, you may be charged higher late fees, higher over limit fees, yearly fees, or up front fees. These credit cards usually have low credit limits. You are generally not given a "grace period" to pay late, unlike regular credit card users.

The Subprime Bottom Line

Subprime borrowing is highly controversial. It is seen as predatory as many borrowers of subprime loans struggle to fully repay the loans. Subprime borrowing has also led to the major credit crisis faced by the world’s financial markets today.

However, subprime mortgages and subprime loans can be a lifeline to certain types of subprime borrowers. They can work well for those who enter into the subprime loan agreement with the full understanding and knowledge that they are at a higher risk. It can be extremely worthwhile for those borrowers who are prepared to make a huge effort to budget carefully and maintain their monthly repayments. If they do this successfully, they will not only be able to own homes and cars, they may also be able to rectify their poor credit history.

Check out the best mortgage providers

 
 
 
 
 
 
 
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