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February 17, 2023

If you are in the market for financing, you’ve probably come across several lending options. Things can get confusing when you’re new to borrowing, making it difficult to decide which is the right funding choice for you. One question many borrowers have is what is the difference between a prime and subprime loan?

A key factor in whether you qualify for prime vs subprime loans is your credit score. A credit score is a three digit number typically between 300 and 850 that predicts how likely you are to pay back a loan on time (your credit risk) based on your credit report. Your credit report is a statement that has information about your credit activity and current credit situation like your loan paying history. There are many ways to access your credit report. Some credit card companies provide free credit reports. You can also use a site like CreditKarma.com.

Prime vs Subprime Loan

Prime loans are typically offered to people with very good to excellent credit scores. These are credit scores between 670 and 850, according to Equifax. However, if you have a score above 720, you are considered a super prime borrower. Subprime loans are available to people with fair, poor, and bad credit scores. These are scores below 669. Learn more about prime and subprime loans and which you qualify for.

What sets these two loan types apart is what rates and fees the borrower can expect and accessibility. Subprime loans have higher rates and fees than prime loans. It is much easier to get a loan when you are a prime borrower. On the other hand, subprime borrowers will find it more difficult to secure funding.

What is a Prime Loan?

When banks or lenders set rates, they typically set a prime rate as the basis of their loan rates, which can be higher or lower based on the creditworthiness of the applicants. The prime rate is based on Federal Reserve rates in addition to other factors like the bank or lender’s goal for return on the loan. Borrowers with good credit scores generally earn prime rates, which mean lower interest rates. If you are a super prime borrower (credit score above 720) you could even earn a rate lower than the prime rate. Here are the main things to know about prime loans:

1. You need a good credit score to qualify.

You can improve your credit score by paying your bills on time, keeping your credit utilization low, keeping your older credit cards open to keep a longer credit history length, and having a credit mix. Don’t open too many credit cards around the same time. Out of these, the most important thing is to keep your credit utilization ratio low by paying down or off your credit cards each month.

2. They are offered by traditional lending institutions.

Prime loans are typically offered by banks, credit unions, and some credit card companies. These types of institutions are generally less likely to lend to subprime borrowers because they are riskier.

3. They come with lower interest rates.

Prime loans come with lower interest rates because borrowers with higher credit scores are less risky. The lower the interest rate, the less a person pays for borrowing money. This means that prime borrowers can pay hundreds of dollars less for a loan than a subprime borrower.

4. You can probably borrow more.

Prime borrowers tend to get approved for higher dollar amounts, so prime loans can be larger in dollar amount. Traditional lenders are less apprehensive about lending large amounts when they know the borrower has a history of paying their debts on time.

5. If approved, your down payment is typically less.

If a prime loan requires a down payment, like a car loan or mortgage, people with higher credit scores can generally pay less up front.

What is a Subprime Loan?

Subprime loans include many of the same loans available to prime borrowers, including subprime mortgages, personal loans, and car loans. However, because those loans are built for subprime borrowers with lower credit scores, there are some major differences. Subprime loans are not as easy to find as prime loans and not typically offered by traditional financial institutions. Many subprime borrowers get funding through online lenders. Here’s what to know about subprime loans.

1. You can expect to pay higher interest rates.

Subprime borrowers are seen as a greater lending risk because of their poor or lack of credit history. As a result, they are charged higher interest rates than prime borrowers.

2. Expect to pay a higher down payment.

Similarly, subprime borrowers typically have to put down more money up front when taking out a mortgage or car loan.

3. You won’t be able to borrow as much.

Subprime borrowers may not be able to borrow as much as prime borrowers. If taking out a personal loan, for example, you might only be able to borrow up to $5,000 as a subprime borrower.

4. You may have to pay fees.

Some online subprime lenders charge fees like origination fees. You may also have to pay higher late payment fees than a prime borrower.

5. You could have a longer repayment period.

While a longer repayment period can seem ideal, it does mean you’ll pay more overall for your loan. A longer repayment period typically means a lower monthly payment, but means it will take longer to pay off the loan and you will pay more in interest.


When it comes to prime and subprime loans, there are many differences, but the key difference is that prime loans are available to those with higher credit scores, while subprime loans are available to those with lower scores. If you have a lower credit score, you may find it harder to qualify for funding, and will typically pay higher interest rates.

If you have a subprime credit score and are in need of funding, Uprova can help with a personal loan alternative.  Learn more about our funding options and get started today.

The content of this website is for informational purposes only. Nothing on this website constitutes financial or professional advice. Consult a professional for advice suitable to your personal circumstances.

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