The Difference Between Prime and Subprime Auto Finance

A few years back, lending institutions used to give just one kind of loan for cars – auto finance. However, the recent economic crisis depleted their possible clientele and increased the number of applicants with bad credit score. Therefore, to maintain their leads and sales flow, lending institutions have started providing special finances, also known as subprime auto finance. One might wonder what the difference between subprime and prime is. When the credit score of the applicant is checked, the individuals with a high credit score are put in the prime lending category, whereas the ones with low credit score are put in the subprime category.

There are some lenders which cater to both the applicants whereas there are some which just cater to one. These divisions are made so that the applicants can check which institution is ready to provide them with the finances. It is clear that the chances of being rejected from a prime lender are more if the applicant has a low credit score.

Another thing which is discussed a lot is the rates that are charged from both the applicants. Usually, it is seen that the applicants coming in the prime category are charged a lower rate whereas the subprime auto finance applicants are charged higher. This is because the latter come in a high risk zone. However, it all depends on how much browsing is done and how low the credit score is. There are some lending institutions which might provide the subprime finances at a low rate if a down payment and/or cosigner is presented.

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