Q? What is sub prime lending?

A: Sub-prime lending refers to loans and credit facilities granted to consumers with C-D credit ratings who cannot obtain credit from traditional lenders. As an alternative financing source, sub prime is considered a high risk lending format that provides an additional credit financing option in the marketplace.

Q? What intereste rates to sub prime lenders charge?

A: Sub prime intereste rates vary greatly but are generally comparable to credit card interest rates. (A typical department store credit card is 28.8% per annum).

Q? What are the higher risks and costs for a sub prime lender?

A: They include a higher portfolio administration, collection and loan recovery costs which results in a higher "cost of funds" (money used to lend to consumers).

Q? What purpose do sub prime lenders serve in the marketplace?

A: The development of the sub-prime market has made credit available to a growing segment of the population that otherwise would have no access to credit to purchase consumer durable goods. It has also been credited with assisting lower income individuals and communities with creating equity, building wealth and enhancing local economies. In addition, retailers of durable goods (cars, furniture, home appliances etc.) actively utilize the financing services offered by sub prime lenders to increase sales volumes, move inventory and provide service to new customers. Assuming the lender sets interest rates in accordance with risk, that the credit loans do not include high fees or abusive lending scenarios, they are both a legitimate and necessary component of the lending market.