Sub-prime borrower

Payday Loan Canada

Mortgage Dictionary -> Sub-prime borrower

Prime or sub-prime-why are these two terms so important? Most borrowers do not think about what their status is in the eyes of the lender, and yet it's probably one of the most important things to think about and to understand. If you don't understand the difference between these two terms-and what makes you a sub-prime borrower-you're about to receive an education.

What is a Sub-Prime Borrower?

Prime borrower means just what you think it would: that you're a borrower with the best status. You qualify for the lowest interest rates and are treated better by lenders than sub-prime borrowers are. Sub-prime borrowers, on the other hand, are considered to be a "risk" and are thus saddled with higher interest rates and higher monthly payments. These two terms are commonly used when talking about mortgages, but are, on occasion, used in the discussion of other types of loans.

Three Reasons Why You're a Sub-Prime Borrower

Now that you know why being a prime borrower is better than being a sub-prime borrower, you may be wondering why you are a sub-prime borrower. Well, it's usually no mistake that you're a sub-prime borrower, and below are three of the reasons why this is the case.

1. You've Missed Payments in the Past 12 Months. When lenders see that you've missed payments on other debt in the past 12 months, then they may think you might do the same with your mortgage. If you're missed two or more payments in the past 12 months, then this can cause you to be a sub-prime borrower.

2. Too Much Debt and Not Enough Income. Lenders like to look at your income and debt and see what sort of ratio you're carrying. If you carry a debt-to-income ratio of greater than 50%, this can send a bad message to lenders and can cause sub-prime status.

3. Credit Score of 660 or Less. As you can imagine, your credit score has a huge impact on what sort of rates you get on your loans. Having a low credit score or even one that is good, but not good enough-can really hurt your borrower status and can lead to you only getting sub-prime borrower rates.