Subprime loans are back!

The Wall Street Journal reports that, “Almost four of every 10 loans for autos, credit cards and personal borrowing in the U.S. went to subprime customers during the first 11 months of 2014…. That amounted to more than 50 million consumer loans and cards totaling more than $189 billion, the highest levels since 2007. Equifax defines subprime borrowers as those with a credit score below 640 on a scale that tops out at 850.”

This resurgence in subprime lending has been driven by non-bank lenders like Elevate Credit which started only last May and has already made more than $300 million in unsecured personal loans to borrowers with average credit scores between 580 and 625.

But these easy-to-get loans come at a price. Elevate Credit, which offers subprime loans in 15 states, charges fixed interest rates of 36% to 365% according to the Wall Street Journal. But “…interest-rate caps imposed by states such as New York and Maryland prevent it from making high-rate loans in some parts of the country.”

Lending Tree, the online loan marketplace, says subprime (FICO scores from 500 and 619) loans it has helped arrange are up 761%. Fair Isaac, which publishes the FICO score, says borrowers with a FICO credit score of less than 650 owe, on average, about $48,000, including mortgages.

So, if your credit score is not so good, you might still be able to get a loan, but make sure you shop around. High interest rates can destroy your finances.


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