Common Effects of Sub-Prime Lending
The easiest way to describe sub prime lending is when a debtor borrows money from a company at a high rate of interest.
Sub-prime lenders tend to get the majority of there business from people who have a poor credit rating, when somebody applies at the bank for a loan and gets declined they tend to turn to a sub-prime lender as they are generally willing to lend people money who have poor credit and as a consequence pay a higher rate of interest.
Problems can arise when people resort to this type of lending as they generally have a poor history of keeping up to date with their repayments.
If they struggle to keep up to date with a loan or credit card at a sensible rate of interest, it could turn to a disaster if they try and keep up to date with rates of anywhere up to 200% APR from a sub prime borrower.
The lenders know this and use it to their advantage by lending you more and more money creating a situation where you are forever in debt to them.
Common ways of sub prime lending A common way of borrowing from a sub-prime lender is at your doorstep.
There are numerous companies out there that will visit your house to offer cash loans at a very high rate.
People who are in financial difficulty and are struggling with their finances could be tempted to take out a loan to help see them through the month.
Once someone starts using a service like this they generally find it difficult to stop.
A typical example would be a customer borrows £500 and pays off £80 per week, for a period of 12 weeks (approx 200% APR) Then, just before they come to the end of the loan term then are then offered to borrow more from the lender.
This keeps the debt flowing and the company profiting from the interest.
Sub prime lenders have a tendency to make the borrower feel 'obligated' to take out more credit at the end of a loan term.
This is because a lot of sub prime lending is done face to face by home visits, which creates a 'relationship' between the borrower and the representative.
No matter how friendly they are its important to remember they are not here to be your friend, its a business to them and they are there to make money out of you.
Other examples of sub prime lending Another example of sub prime borrowing would be buying a second hand car from a dealer.
When you have a poor credit rating and you enter a car showroom, it is likely that if you find a car you like then you will be sold sub-prime car hire purchase.
This is a classic time to work out the figures as most car salesman just try to work around you monthly budget i.
e.
£250 per month, people then think I can afford that, I like the car, where do I sign? What you need to work out is how much is the car worth, how much are you paying back in total, then ask your self if you are happy about paying that much back?
Sub-prime lenders tend to get the majority of there business from people who have a poor credit rating, when somebody applies at the bank for a loan and gets declined they tend to turn to a sub-prime lender as they are generally willing to lend people money who have poor credit and as a consequence pay a higher rate of interest.
Problems can arise when people resort to this type of lending as they generally have a poor history of keeping up to date with their repayments.
If they struggle to keep up to date with a loan or credit card at a sensible rate of interest, it could turn to a disaster if they try and keep up to date with rates of anywhere up to 200% APR from a sub prime borrower.
The lenders know this and use it to their advantage by lending you more and more money creating a situation where you are forever in debt to them.
Common ways of sub prime lending A common way of borrowing from a sub-prime lender is at your doorstep.
There are numerous companies out there that will visit your house to offer cash loans at a very high rate.
People who are in financial difficulty and are struggling with their finances could be tempted to take out a loan to help see them through the month.
Once someone starts using a service like this they generally find it difficult to stop.
A typical example would be a customer borrows £500 and pays off £80 per week, for a period of 12 weeks (approx 200% APR) Then, just before they come to the end of the loan term then are then offered to borrow more from the lender.
This keeps the debt flowing and the company profiting from the interest.
Sub prime lenders have a tendency to make the borrower feel 'obligated' to take out more credit at the end of a loan term.
This is because a lot of sub prime lending is done face to face by home visits, which creates a 'relationship' between the borrower and the representative.
No matter how friendly they are its important to remember they are not here to be your friend, its a business to them and they are there to make money out of you.
Other examples of sub prime lending Another example of sub prime borrowing would be buying a second hand car from a dealer.
When you have a poor credit rating and you enter a car showroom, it is likely that if you find a car you like then you will be sold sub-prime car hire purchase.
This is a classic time to work out the figures as most car salesman just try to work around you monthly budget i.
e.
£250 per month, people then think I can afford that, I like the car, where do I sign? What you need to work out is how much is the car worth, how much are you paying back in total, then ask your self if you are happy about paying that much back?
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