Learn all about prime loans, rates, and lending, so you can know what kind of loans are available to you.
Prime lending offers borrowers with strong credit more favorable interest rates and loan terms to go with their favorable credit scores. So if you’re looking for prime loans and prime rates, you’ll first need to learn how to be a prime borrower.
This article explains all about prime lending, what prime loans are, how they work, and the criteria you need to meet to qualify for them. Whether you’re looking for a prime loan or to elevate your credit status to prime borrower, we’ll give you all the basics you need to know to get started.
What is Prime?
Prime is a type of lending designed for borrowers in a prime category of creditworthiness. It can refer to the type of lending, loans, rates, or borrowers in the loan world that have better credit, rates, and terms. Prime is used to describe the loan rates available to borrowers with a strong credit history, who show less risk for the lender as a loan candidate.
What are Prime Rates?
A prime rate is a category of interest rates available to loan borrowers with higher creditworthiness. For example, higher loan rates might be described as subprime, while lower interest rates are described as prime. Prime rates are usually available for borrowers with higher credit scores.
What is the current prime lending rate?
Market interest rates can fluctuate over time, making the average rates higher or lower. The prime rate is like a financial benchmark, showing what a good rate looks like for the best type of loan borrowers. This loan rate benchmark is then used across financial industries like banks, credit cards, lenders, auto loans, home loans, and more.
According to the Wall Street Journal, as of August 6, 2024, the current prime lending rate is 8.50%. Borrowers can consider this a baseline for some of the lowest rates available to the best loan customers. By tracking the fluctuation of the current prime lending rate you can also determine when the best time to get a mortgage or personal loan might be.
What is a Prime Loan?
A prime loan is a type of loan with lower rates for borrowers with good credit scores. Depending on your credit score, you may be placed in a category of credit user like prime or subprime. Banks then establish the type of interest rate given to their best customers with the best credit scores.
So if you’re a borrower looking to get a loan, consider checking your credit score to see what range of loans and rates you can qualify for to see what kinds of loan options are available to you.
What are Super-Prime Loans?
Super-prime loans are loans that are a grade above prime loans. These loans are available to borrowers who are considered very low-risk for the lender. This means that you don’t just have a good credit score, you have a great credit score.
How to Get a Prime Loan
Prime loans offer some of the best rates lenders can offer, so it makes sense to strive for this type of loan when you need to borrow money. To get a prime loan, focus first on building your credit strength, then take the time to research lenders, and remember to read your loan agreement carefully before you sign.
1. Build Your Credit Strength
First, focus on building your credit strength so you have a credit score that makes you eligible for this type of loan. Review your current credit score and perform a self-audit of your credit report. Reviewing your credit report can help you see any mistakes that might need fixing or helpful items that might be missing from your credit history.
It’s also a good way to assess how you’re doing financially and areas where you can improve your financial health. You’ll want to keep your debt-to-income ratio low, your credit utilization rate low, and always make on-time payments.
2. Research Prime Lenders
You can get prime loans from many financial institutions like banks, credit unions, and lenders. You may even be eligible for a prime loan from the bank you already use. Take the time to shop around and review the prime lending options available to you.
3. Read Your Loan Agreement
After you choose a lender and get approved for a loan, always take some time to read through your loan agreement. This will help you make sure you understand the rates, fees, and terms associated with your loan.
What Do You Need to Qualify for a Prime Loan?
Every lender will come with their own eligibility requirements for their borrowers. While you’re researching different lenders, look into what requirements they have for approval. You may be expected to provide your personal contact information, government-issued ID, or recent bank statements. To qualify for a prime loan specifically, you will most likely need to have a credit score in the prime range as well.
What Credit Score Do You Need for a Prime Loan?
Individual lenders often have their own credit score requirements for the loan products they offer. If you want to qualify for a prime loan, then you’ll need a prime credit score. Generally, credit scores that are 660 or higher are considered prime.
According to the Consumer Finance Protection Bureau (CFPB), there are 5 credit score levels that borrowers fall under. Credit scores below 580 are considered deep subprime, credit scores between 580-619 are considered subprime, credit scores between 620-659 are considered near-prime, credit scores between 660-719 are considered prime, and credit scores between 720 or above are considered super-prime.
Credit scores are also not the only factor lenders consider when assessing loan applicants. Your lender might also consider variables like your income, employment status, or your total debt-to-income ratio.
Prime Loans vs Subprime Loans
All in all, the thing to remember when learning about prime vs subprime lending is that lenders use risk-based pricing to set the rates, fees, and terms associated with the loans they offer their customers. These prices are then set depending on the individual borrower and the information they get about that applicant's finances and credit history.
Understanding where you fall in credit score categories can help you understand what types of rates, fees, and terms are available to you. If your credit score is between 580-619, then you’re in the subprime category and can expect subprime rates and terms. But if you raise your credit score into the 660 range or higher, then you enter into the prime category and can potentially get better rates and terms.
