What is a Subprime Credit Card?

The subprime credit card refers to a credit card issued at a below prime or “below best” interest rate. This actually means a higher interest rate than optimum. Such cards are marketed mostly to people with imperfect credit, and interest levels can vary from a few to very many points below prime. The rate of interest can be shocking on certain cards, and be three to four times the interest offered to those with good credit. Though these cards may be a good option for those working to restore credit, the responsibilities associated with them or their high additional costs, may make them unattractive to some.

First, it’s important to note that the US market crisis of 2008 and onward changed the way a lot of companies issue credit. Even people with relatively good credit sometimes faced the fact that they suddenly had a subprime credit card if the bank raised the interest rates on their present cards, which many of them did. There were also rather retributive gestures leveled at consumers who couldn’t make a payment. A lot of credit card companies set default rates, such as 30% interest, and then moved consumers to default rates if their payments did not arrive, were lower than the minimum due, or arrived late. To compound difficulties, many lenders weren’t interested in lending to people with less than perfect credit, so those who found themselves with a subprime credit card had trouble finding a more competitive rate.

Though a new issue for people with good to excellent credit, those with poor credit were already familiar with the details of the subprime credit card. These cards can be found with a variety of banks, but interest can be very high. Cards also might have security deposit requirements, yearly fees and start-up fees, and amount of credit offered is usually fairly low.

Most credit card companies, including subprime lenders, now also define a default rate, and default may be achieved by missing or being late on one payment, which means the subprime rate can climb swiftly, though in some countries some regulations exist as to the highest rate a default rate can be. Still, if it is close to 30%, borrowing $1000 US Dollars (USD) paying it off over time could mean paying $300 USD or more in interest. Subprime lenders contend these extra fees and interest rate hikes are necessary because they take greater risks by loaning to people with riskier credit scores.

To some, the subprime credit card still gives the opportunity to improve credit rating. This is especially true if people make large, timely payments on debt owed. Paying off the credit card several times can also improve credit, if a person is not accruing debt in other ways that remains unpaid. For those with good credit, some shopping around may still be needed to find the best rates, as many lenders are still happy to extend money to people with strong credit at a rate that is less than prime.