 TITLE: What to Know About Subprime Loans CONTENT: The Difference Between Subprime and Prime Loans\n-----------------------------------------------\nA subprime loan works similarly to a prime loan in terms of the general setup. The primary difference is that subprime loans tend to charge higher interest rates, and may also charge certain fees you might not see with prime loans.\nThis happens because of risk-based pricing, which is a method lenders use to determine interest rates and other terms based on your creditworthiness. The more likely you are to default—in the lender's eyes, at least—the more a loan can cost in terms of interest and fees.\nWith a relatively short-term loan, such as a personal loan, the difference in overall cost might not be too wide. But on a subprime mortgage loan with payments spread over 30 years, the difference could cost you tens of thousands of dollars more.\nAs a result, it's important to carefully consider whether you need a loan now or if you can afford to wait until your credit has improved and you have a better chance of qualifying for a prime loan. END