Subprime - Definition of Subprime Borrowers and Lending

Definition: Subprime refers to a borrower that is not 'prime'. These are borrowers who might be less likely to repay a loan. Subprime borrowers may be classified as subprime because of:

• Bad credit or lack of history
• Low income or poor debt to income ratios
• Large loans relative to the securing property (high LTV ratio)
• Maxed out credit cards

Referring to somebody as subprime is similar to saying they have “less than perfect credit”.

• How Credit Works

When You’re a Subprime Borrower

Borrowers in the subprime category often pay more in interest. Because they’re a greater risk for a lender, the lender charges a higher interest rate. Subprime borrowers often find themselves with a limited selection of products and lenders. Finally, subprime borrowers are often the targets of scam artists because a subprime borrower is typically more desperate to get a loan (they might also be viewed as less sophisticated).

Subprime Lenders

The term subprime really refers to the borrower. However, some lenders are known as subprime lenders (or they make subprime loans). This means that they make a habit of working with subprime borrowers. In other words, their target market is the subprime borrower.

Subprime Mortgage Crisis

Subprime is blamed for sparking the mortgage crisis that boiled to a head in 2008.

• What Caused the Mortgage Crisis?