What is the difference between a prime loan and a subprime loan for a car?

Being approved for car finance very much depends on your financial situation, including your current credit score. As we’ve explained in our credit score scales article, the higher your credit score, the more likely you are to be offered a car loan by a lender. 

To reflect good and bad credit scores, a loan is also divided into various categories; such as a prime loan and a subprime loan. In this article dedicated to the topic, we explain what a prime car loan is, what a subprime car loan is, and everything in between, as well as highlighting the differences between them. Read on to find out more… 

What is a prime car loan

If you’re fortunate enough to have a credit score that sits between ‘good’ and ‘excellent’, then you’ll be offered a more favourable car loan from the finance company with a lower interest rate too. This is known as a ‘prime’ loan.  

What is a subprime car loan

If your credit score is considered to be in the ‘poor’ bracket or you have bad credit history, then as a borrower, you are likely to be offered a less favourable car loan with a much higher interest rate. This is known as a ‘subprime’ loan.       

What is the difference between prime and subprime car finance?

The main difference between a prime loan and a subprime loan is the interest rate offered by the lender - be it higher or lower. Other terms in the agreement will vary too, such as the loan amount offered and the upfront payment required. 

If you have a bad credit history which results in a poor credit score - or are applying for credit for the first time - then you are likely to be considered more of a risk to lenders, so will be placed in the subprime car finance category. At the other end of the scale, those with good or excellent credit scores will fall into the prime or ‘super-prime’ car finance categories.  

What credit score do you need for prime car finance?

Lenders heavily rely on different credit scoring systems to determine whether you’re a reliable borrower. Here in the UK, Equifax, Experian and TransUnion are the main models used by finance companies to establish your creditworthiness. Score scales vary ever-so-slightly, but generally a score of at least 670 will place you in ‘good’ territory and into the sought-after prime finance bracket. 

What credit score do you need for subprime car finance?

At the other end of the scale are ‘fair’ and ‘poor’ credit scores that result in subprime car finance. As a borrower, a score of 580 or below will likely see you fall into this category. Find out if your current credit score will enable you to get approved for a car loan by reading our guide to what credit score is required for car finance.   

What is near-prime car finance?

So, what happens if you have a credit score that falls in between the prime and subprime categories? Well, near-prime finance - sometimes referred to as ‘non-prime’ - is the territory in which you’d sit. 

In fact, the near-prime bracket covers a majority of motorists who apply for car finance and is the most common category to fall into. From a credit score perspective, near-prime or non-prime is usually a number between 581 and 669, but of course this can vary depending on the credit score model used by the lender.     

What is super-prime car finance? 

If you’re fortunate enough to have an ‘excellent’ credit score of 800 or above, then you'll have a credit profile that is considered to be in the ‘super-prime’ category. Customers eligible for super-prime car finance will benefit from the lowest interest rates available. 

Prime car finance key takeaways

We appreciate there can be a lot of information to digest when it comes to understanding the difference between the prime-based brackets relating to car finance. In a nutshell, here’s what you need to know… 

• There are four main prime-based credit profiles that customers will be banded into, these are: 

1. SUBPRIME = Poor credit score 
2. NEAR-PRIME = Fair/average credit score 
3. PRIME - Good to very good credit score 
4. SUPER-PRIME = Excellent credit score

• The lower your credit score, the riskier you are to a lender, whereas the higher your credit score, the less risk you pose to the lender and are more likely to be accepted as a borrower. 

• With this risk comes higher interest rates, interest rates that are adjustable, larger deposits, small loan amounts, longer repayment periods, and higher late payment fees. 

• To summarise, the higher your credit score means you’ll be able to access the best car finance deals available.

Find out how to improve your credit score by reading our helpful how-to guide.   

Prime and subprime car loans courtesy of Octane Finance

Whatever your current credit score, with our help it is possible to access car finance to fund your next vehicle. Here at Octane Finance, we work with a whole host of lenders that specialise in offering finance solutions to customers, ranging from subprime to super-prime profiles. 

Don’t let a bad credit profile hold you back, speak with one of our expert finance brokers who will guide you through the process and source the ideal lender. We will always go above and beyond to secure the best rate possible, so you could be driving the car of your dreams sooner than you think! Get in touch to find out more.