What is a 'B/C Loan'

A B/C loan is a loan to a subprime or thin file borrower. This type of loan is typically issued by alternative lenders charging high interest rates and fees.

BREAKING DOWN 'B/C Loan'

B/C loans are issued to low credit quality borrowers and borrowers with minimal credit history. Generally A-labeled loans follow more conventional standards and are issued by traditional financial institutions. A-labeled loans are encompassing a greater majority of the credit market as new regulations from the Dodd-Frank Act tighten standards for loan underwriting and provide greater incentives for higher quality loans.

A-Labeled Loans

The Dodd-Frank Act instituted new lending requirements for all lenders which increased the standards for lending across the industry. The Act also created qualified mortgages which are mortgage loans meeting certain requirements that can receive special protections and more favorable terms in the secondary market.

B/C-Labeled Lending

B/C-labeled loans are alternative loans issued to subprime and thin file borrowers. They offer a second tier of loan eligibility for borrowers that do not qualify for A-labeled loans. They can often be a good way for borrowers to obtain funding while also improving their credit score which can help them to receive more favorable financing terms in the future.

These loans can generally be classified as subprime loans. They have a greater default risk for the lender since the borrower’s credit score is generally 650 or below which puts them in the fair, poor or very poor category according to VantageScore credit scoring methodologies. According to data from Experian these categories encompass 69.10% of borrowers.

Borrowers in the B/C-labeled loan category may also be thin file borrowers with no credit history for which to generate a credit score. A growing number of alternative credit agencies and alternative lenders have been developing in the credit market to serve these types of borrowers. Lenders and credit reporting agencies that focus on thin file borrowers will seek to analyze alternative types of payment data such as cell phone bills, utility bills, rent payments and even public records.

Because of the additional credit risk associated with B/C loans, lenders will usually require higher fees and interest rates than A-labeled prime loans. These types of loans however are generally more favorable than D-labeled loans which can encompass payday loans from payday lenders with annual interest rates ranging up to 400%. B/C loans will typically have interest rates that are relatively higher than A-labeled loans but substantially lower than D-labeled loans. This puts annual interest rate levels generally in the 25% to 75% range.

RELATED TERMS
  1. Loan Officer

    A loan officer is a representative of a bank, credit union or ...
  2. Prime

    Prime is a classification of borrowers, rates or holdings in ...
  3. Personal Interest

    Personal interest is interest that individuals pay on personal ...
  4. Maximum Loan Amount

    A maximum loan amount describes the total amount that a borrower ...
  5. Second Chance Loan

    A second chance loan describes a number of credit options marketed ...
  6. Guaranteed Loan

    A guaranteed loan is a loan guaranteed by a third party in the ...
Related Articles
  1. Personal Finance

    How To Apply For a Personal Loan

    Learn about different avenues for applying for a personal loan, and learn valuable tips to help you get your personal loan application approved.
  2. Personal Finance

    Home Improvement Loans: What Are Your Best Options?

    If you plan on taking out a home improvement loan, you should know what your options are and which ones might be best for your situation.
  3. Insights

    An Introduction to Government Loans

    Government loans further policymakers' efforts to create positive social outcomes by offering timely access to capital for qualified candidates.
  4. Personal Finance

    The 4 Worst Ways To Borrow Money

    While there are less risky places from which to borrow, there are also predatory lenders who can make your financial situation worse than it was to begin with.
  5. Personal Finance

    Have Bad Credit? 6 Ways to a Personal Loan Anyway

    It'll cost you more, but borrowing is definitely doable. Here's how to proceed.
  6. Retirement

    Business Owners: A Guide To Qualified Retirement Plan Loans

    Thinking of adding a loan feature to your company's plan? Here's what you need to know.
  7. Small Business

    Small Business Loan Vs Line of Credit: How They Differ

    Understand the differences between a small business loan and a line of credit, and learn some of the most appropriate uses for each form of financing.
  8. Personal Finance

    Getting A Mortgage: How The Process Has Changed

    After the banking crisis, banks have tightened their lending standards. Find out how the current mortgage-lending standards have changed in the last five years.
  9. Personal Finance

    Student Loan Asset-Backed Securities: Safe or Subprime?

    Similar to the mortgage-backed securities that caused the 2008 recession, student loan asset-backed securities could lead to the next financial crisis.
  10. Personal Finance

    These 4 Moves Will Get You OK'd for a Bank Loan

    There’s no secret trick to getting approved for a bank loan, but there are some things you can do to put your best foot forward financially when applying.
RELATED FAQS
  1. What are the pros and cons of life insurance policy loans?

    Find out the pros and cons of borrowing against your life insurance policy to help you decide if this loan type is the right ... Read Answer >>
  2. What is the difference between a loan and a line of credit?

    Understand how to differentiate between lines of credit and standard loans. Then determine when you are most likely to use ... Read Answer >>
Trading Center