What is a subprime loan?We have all heard about the subprime lending crisis that is going on right now but the media rarely tells us the details of this mess and how it came about. A sub-prime loan is a loan considered to be more risky than a prime loan. The criteria for qualifying is far more flexible than a prime loan and the interest rate charged is higher. A prime loan is considered to be low risk, also called "A" paper. People with good credit and verifiable income qualify for these and they are at lowest rates available. The crisis is that the sub-prime lenders were so relaxed in their qualifying criteria that they made lots of loans to people who are not paying them. The loans are not being paid and the value of the real estate is in many cases less than the loan that was given. In addition, most people who get sub-prime financing get a loan that is a fixed interest rate for a couple years and then it changes to an adjustable rate. If their home has not appreciated in value and if their employment or credit has not improved they will have a difficult time in refinancing back to a low rate. This is the scenario for millions of Americans and is causing ramifications that will be felt for quite some time. The big picture of this financial meltdown is beyond the scope of this site. The personal credit aspect is very relevant to anyone facing the difficulty of this situation. Give yourself all the help you can by protecting and building your credit.
Good credit = more options out of subprime mess.
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