If you have a checkered credit history, you have plenty of company—about 1/3 of American consumers. Some lenders specialize in lending to people with less-than-perfect credit. It’s a simple idea—charge higher interest in exchange for the perceived risk. Some subprime lenders, including industry leader Ameriquest, have been accused of shady practices—extravagant loan prices, excessively high interest, etc.

In the current slowed real estate market, a number of these companies have gone out of business, including Ameriquest. This is bad news for some low income and minority borrowers, for whom borrowing at “subprime” rates has made the dream of homeownership attainable.

The main risks of saddling a consumer who has already had problems paying their bills are default and foreclosure. Creative financing that accompanies subprime loans often involves ARM’s (adjustable rate mortgages), which are very tricky in an economy with rising interest rates.

You do need to be more cautious when using this avenue, and thoroughly investigate your provider. If your credit score is between 620 and 640, beware. You are a prime target for unscrupulous subprime marketers. Shop around, and apply for a conventional home loan first.

Link to first-ever large scale study of subprime lenders:

http://www.consumeraffairs.com/news04/2006/12/crl_foreclosures.html