Prime or Non Prime
Understanding Prime Credit
Though each of the two main credit bureaus - Equifax and TransUnion - have the same overall range of credit scores (300 to 850), the credit score range that is considered prime may vary. Consumers with scores at the highest end of these ranges are considered to have super-prime credit, and consumers whose scores fall just below that range are considered to have prime credit. Below that comes near prime and sub-prime, the lowest score with the least advantageous terms when it comes to loans. Although the credit bureaus have four defined ranges, the financial institutions that are the end users may have different categories for their internal models. For example, a bank may give the best financing for car loans to anyone qualifying as a prime borrower rather than having separate terms for super prime.
How a Prime Credit Score Affects Lending Rates
Borrowers with prime credit can expect to pay slightly higher interest rates than borrowers with super-prime credit since they are considered to have a slightly higher risk of not repaying their loans. For example, having a prime credit score might mean paying 1% more on an auto loan than a borrower with a super-prime credit score would pay. Having prime credit usually means you can get a new loan and retain access to your existing credit lines even when the overall credit market is tight. Even in a strong economy where credit is readily available, prime and super-prime borrowers receive most of the credit that banks issue.
If you apply for a loan with several different banks and financial institutions, you might be surprised to find that some classify you as having prime credit while others classify you as having super-prime credit. Or, if your score is toward the lower end of the prime range, you might find that some lenders classify you as having prime credit while others classify you as having near-prime credit. Because your credit file with each bureau may contain slightly different information, the score range you fall into with each bureau could be different, and lenders might offer you different rates depending on which bureau they pull your credit score from. No matter the source lenders pull from, keeping control of your debt accounts and making payments regular will generally help improve your current score.
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
- Delinquent payments
- Written off accounts
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 Niagara Chrysler. 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! If you are not sure, please click on the link below and we will help get you approved!