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Subprime Car Loans in Canada: Our 2 Minute Guide

Subprime Car Loans in Canada: Our 2 Minute Guide

Bad credit car loan, subprime lending, call them what you like, they are all popular finance products that our Hamilton auto loan team deal with every day. But what exactly is subprime? What does it mean? What’s the difference between a subprime auto loan and a standard one?


Let’s find out!

Subprime auto loans in Hamilton


Let’s clear up some terminology first. People with good credit scores are referred to a prime. A ‘standard’ auto loan that someone with good credit takes out is called a prime loan, because all the conditions of a good loan have been met.


Someone with bad credit is referred to as subprime. They are less than ideal because of a low credit score, previous credit issues or some other reasons. Auto loans taken out by those with bad credit are called subprime auto loans for the same reasons.


Prime and subprime were never financial terms. They were first coined by the U.S. media when discussing the financial crash of 2008. The financial world and the world at large adopted the term and now use it regularly to describe finance for those with imperfect credit scores.


Despite negative connotations linked with the term subprime it’s not meant as a derogatory term. It just means less than ideal.


That is actually a fairly accurate description for someone who has had credit issues who wants to apply for credit.


Subprime borrowers can be anyone. Thousands of Canadians find themselves in financial difficulty through no fault of their own and many are a victim of circumstance.


Subprime borrowing


Because prime and subprime borrowing didn’t start as a financial term, it doesn’t have a financial value. Meaning that there is no ‘official’ definition of what a subprime borrower is.


We widely regard someone with poor credit to be subprime but there is no national standard as to what their exact credit score is. It’s up to each lender to work it out for themselves, which can cause confusion.


What’s the difference between a subprime auto loan and a standard loan?


The only real difference between a prime loan and subprime loan is the interest rate charged. The application is the same, although the lender will check subprime applications much more carefully.


You will have the same paperwork requirement, the same burden of proof for income, the same down payment requirement and all the rest.


The difference in the two types of loan is the risk. Subprime auto loans are regarded as higher risk than prime loans, so will attract a higher interest rate as a result.


Exactly how much interest depends entirely on the lender, on the borrower and the amount being borrowed.


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