“Subprime” refers to loans made to consumers who do not meet the typical credit standards of market rate (“A”) loans. As a result of the potentially high risk, “subprime” loans have higher interest rates and fees.
“A” is the credit industry term used to describe a loan that reflects the best possible interest rate terms, and conditions. Consumers need to demonstrate good credit in order to secure a “A” loan.
Consumers with impaired credit may be offered “B” or “C” loans. These loans impose higher interest rate and fees.
Some lenders specialize in “A” loans, some in “subprime” loans, while other lenders offer both.
Car Loan
“A” is the credit industry term used to describe a loan that reflects the best possible interest rate terms, and conditions. Consumers need to demonstrate good credit in order to secure a “A” loan.
Consumers with impaired credit may be offered “B” or “C” loans. These loans impose higher interest rate and fees.
Some lenders specialize in “A” loans, some in “subprime” loans, while other lenders offer both.
Car Loan
- A $20,000 car loan at 8% for 5 years, cost $405.53 per month. After making all 60 of the payments, (12 months * 5 years) the total paid is $24,331.67.
- A $20,000 car loan at 14% for 5 years, cost $465.37 per month. After making all 60 of the payments, (12 months * 5 years) the total paid is $27,921.90. That’s a difference of $3,590.23 in extra interest. What would you do with an extra $3,500 in your pocket right now? It would be nice to have, right?
Home Mortgage
- A $125,000 home mortgage at 7% for 30 years, cost $831.63 per month. After making all 360 of the payments, (12 months * 30 years) the total paid is $299,386.12.
- A $125,000 home mortgage at 12% for 30 years, cost $1,285.77 per month. After making all 360 of the payments, (12 months * 30 years) the total paid is $462,875.66. That’s a difference of $163.488.86 in extra interest over the life of the 30-year loan.
