What is a Subprime Lender?
A Subprime Lender is a specialised lending company that lends
to individuals whose credit history has characteristics that
prevents them from borrowing from mainstream lenders. This could
be because of a poor credit history, through an individual’s
employment status, personal bankruptcy, having a County Court
Judgement (CCJ), defaults or because of a range of other factors
that adversely affect someone’s credit rating. Subprime lenders
offer borrowing opportunities to individuals who would be unable
to obtain loans through mainstream lenders.
How does subprime lending work?
Sub Prime Lending is a vital part of the credit-impaired
lending market. Subprime loans are an important part of the
household budgets of a great many people. Individuals with poor
credit histories are considered to carry a higher risk and
subprime lenders have developed a number of strategies to make it
economically viable to operate in this market. These strategies
include introducing higher interest rates, higher late payment
fees (in the case of subprime credit cards) or higher annual fees
compared with comparable prime lending products. This generally
makes borrowing from subprime lenders more expensive compared to
borrowing from mainstream lenders but borrowers benefit by being
able to borrow despite a problematic credit record.
What types of sub prime lending exist?
There are many types of subprime lending in the UK. The two
common types of subprime lending are door step lending (also
called door to door lending) and subprime mortgage lending. These
are discussed briefly below:-
a) Doorstep lending
Doorstep lending or door to door lending, is a way for
individuals with an adverse credit history to borrow small sums of
cash over short periods of time. Repayments are made weekly or
fortnightly and are collected by agents who visit individuals in
their own home.
However, interest rates are substantially higher than many
other categories of mainstream lenders and are generally most
attractive to those who find it difficult to borrow from other
sources.
b) Sub prime mortgage lending
Sub Prime Mortgages (also known as bad credit mortgages) are
especially suitable for individuals considered to have poor credit
histories, or who cannot prove their incomes.
Bad credit mortgages are available through a range of
specialist mortgage lenders as well as more well known financial
institutions.
c) Other
In the UK there are a range of subprime loan (bad credit loan)
products including subprime car loans, subprime credit cards as
well as subprime mortgages.
