Of Non-prime Lenders and Loans

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Getting approved for a prime loan is not an easy feat. A high credit rating and an excellent financial record are necessary to close a prime loan. Nonprime lenders, on the other hand, provide special loans for individuals who do not have these prerequisites.

The last recession curbed employment opportunities and weakened the economy. This also gave way to more strict lending standards, making it even harder to qualify for a conventional loan.

Not everybody is blessed with stable employment. Those who have worked often don’t have the guarantee of getting a good salary. Others are left with only one option, to be self-employed. Some remain unemployed, struggling to make ends meet and pay their debts.

Nonprime lenders are not as saturated as prime lenders in the market. However, they are also large and established loan providers in the lending market.

Subprime in the Recent Past

In the recent past, they are highly associated with a close-cousin, the subprime loans. Loans considered as subprime were sold like hot cakes. They were aimed at individuals who would not normally qualify for a prime loan. Because these people are considered ‘riskier borrowers’, subprime loans had really high-interest rates to make up for the risks.

These ridiculously high-interest rates paved the way for borrowers to default on their loans. It was too high, borrowers had a hard time paying the loan off. When there were too many loans on default, the subprime bubble burst.

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Nonprime Lenders and Loans Today

Due to the catastrophic damage brought by the subprime crisis, new lending laws and guidelines were drafted. Stricter rules took effect making it difficult to get financing. Did the subprime lenders disappear after the crisis? No, they are still here today. But, much has changed in the way they do business.

Subprime today is more closely associated with those having really bad credit. If you are a subprime borrower, you are ‘high-risk’. Nonprime, on the other hand, are those individuals who have problems with their credit or income requirements but not in the same boat as those subprime borrowers.

This is why non-prime can also be referred to as “near prime” or “second-chance” lending. Those whose credit score is 660 or below may take a nonprime loan. However, not everyone can be approved for the loan.

Back in 2006, subprime lenders approved individuals for a loan even if their credit score is as low as 580. They didn’t require any down payment. Meaning, you can get the funding without them having any cushion.

Most subprime lenders back in the day didn’t even bother verifying an applicant’s income and employment. All this was happening at a time when there were limited oversight and regulations.

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An All-New Non-prime

Nonprime loans today are so different from the subprimes of the past. Lenders acknowledge that nonprime borrowers are ‘riskier’. And that they need a safety net to keep the mistakes of the past from happening again.

These loans require a down payment of at least 20 percent. According to loan experts, borrowers who shell out a significant amount of money as down payment are less likely to default on their loans.

From no-docs, most non-prime loans nowadays need at least an income verification. Also, nonprime loans are still outside the bounds of Qualified (or Prime) Mortgages, the new generation of nonprime lending is considered safer than before.

Nonprime lenders provide borrowers an opportunity to access their much-needed financing. Moreover, it gives them a fairground to rebuild their credit and financial records. If used responsibly and strategically, it can help many individuals have sounder financial status.

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