If you’re thinking about taking out a loan, but wondering what kind of loan you’ll qualify for, then we can help. The biggest factor is your credit rating, and it’s easy to pull this number from credit reporting agencies like TransUnion. If you’ve heard the terms “prime” and “subprime” before in the context of finances, then you might be asking yourself, “what are prime and subprime lending in Canada?” These terms reflect the nature (and interest rates) of a loan. When you sit down with a lender and they use this terminology, it somewhat describes the type of loan you will be getting.
So What is Prime Lending?
Prime lending is a general term referring to conventional loans for people who meet fundamental lending criteria. For example:
- Your credit score is 650 or above – Go Auto Outlet will look at this number to determine whether you qualify for a prime or subprime loan
- You have no prior vehicle repossessions – if you’ve had a vehicle repossessed before, this can factor into whether you’ll qualify for a prime loan
- You’re making a total of at least $1,800 per month before deductions or taxes
The logic is that lenders want to know whether you’ll be able and willing to pay off a new loan plus interest. If so, then you’ll likely qualify for prime lending, which essentially means a loan with a better term and lower interest rate. You’ll want to get one of these loans if you qualify, because prime loans tend to be less expensive in the long run.
If you’re interested in qualifying for a prime loan, but you’re thinking you won’t be able to, then there are many ways of improving your credit so you can eventually qualify.
And What is Subprime Lending?
Not everyone will meet the above criteria, and subprime lending caters to this segment of the market. You’ll probably qualify for one of these loans if you don’t meet the qualifications above. There are several things that can affect your credit and your ability to qualify for a prime loan:
- New residency
- Maxed credit
If you believe you fall into one of these categories, or if you’re concerned about your credit, then you certainly can speak with your bank or credit union, or one of the Finance Experts here at Go Auto Outlet. We’ll be happy to help find the best course of action that puts you on the right path.
The higher interest rates characteristic of subprime loans is how lenders make up for having less criteria. The higher interest rate helps to mitigate any potential loss the lender might experience over the course of your paying off the loan (say, because of missed payments).
And further on the topic of risk, prime loans have a lower risk to the borrower too because of their lower interest rates and lesser penalties for defaulting or being late on payments. This is, perhaps, one of the biggest differences between prime and subprime lending–it’s the one that affects you, the borrower, directly.
what are prime and subprime lending in Canada – What to Do Next
So what now? If you’re still wondering which type of loan you’d qualify for, then you might want to begin by getting a copy of your credit report and your credit score. If you’re interested in getting a prime loan and you’re sure that you’d qualify, then you can contact us with confidence and apply right away!
We hope we’ve helped you answer the question, “what are prime and subprime lending in Canada,” and that now you have a better idea of the differences between the two. Please, contact Go Auto Outlet should you have any questions we haven’t answered already!