A Bad Credit Lender will make extra money from you AND at the same time increase your interest rate by adding an extra item to your loan...it's called...
'Yield Spread Premium"
It's amazing that many borrowers don't even realize this exists or can be negotiated. Why should you as a bad credit borrower be aware of this premium?
Mainly because you can lower the cost of your loan significantly if you understand how to identify and negotiate this ridiculous item which raises your interest rate in increments of .25%
What the Bad Credit Lender will count on is that bad credit borrowers EXPECT to get a higher interest rate for their damaged credit, so as a result, many bad credit borrowers are oblivious to the tactic.
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Of course, a borrower with damaged credit (below 650 credit score) will never get the same interest rate as a borrower with a 750 credit score. However, this is not the point. You will no doubt qualify and be offered a higher interest rate than the borrower with great credit, but can you do better than the rate you were offered?
Probably YES.
Remember, the bad credit lender is betting you will accept a loan with a higher interest rate because he knows as a rule bad credit borrowers think they have limited loan choices and rarely shop loans.
So what does he do?
He increases your interest rate by .5%.
In other words you were offered a 7% interest rate when the actual lender funding the loan qualified you for a 6.5% loan.
The broker, by using the yield spread premium tactic , will earn a nice commission from the lender for 'marking up your interest rate'. This happens all the time! Borrowers simply do not question the rate because they EXPECT higher rates and fail to shop or compare multiple quotes.
Learn how to avoid this needless mark up if you are refinancing or buying a new home.
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