Subprime Lending

Business, Legal & Accounting Glossary

Definition: Subprime Lending


Subprime Lending


Full Definition of Subprime Lending


Subprime lending refers to the practice of lending money to such companies or individuals that don’t meet criteria of best market rates and have a history of deficient credit. Terms like B-Paper, near-prime subprime lending or second chance lending are used for subprime lending. Process of subprime lending can be accomplished by using several credit tools like subprime mortgages, subprime car loans and subprime credit cards.

Types Of Subprime Lending

Subprime Mortgages

Subprime mortgages can be referred to as a type of loan that carries greater risk as borrowers of this type of loan don’t fulfil normal borrower criteria because they have a history of limited credit. Subprime mortgages are generally availed by that type of borrowers who have limited income or have FICO credit scores that range from 300 to 850. Subprime mortgages comprise of higher interest rate than prime mortgage loans and the price of the loan is decided on the risk assumed by the lender.

Subprime Credit Cards

Subprime credit cards are those types of credit cards that carry low credit limits, severe fees value and high-interest rates rising up to 30 per cent or even more. Subprime credit cards are offered to borrowers with low credit gains and past of credit defaults or bankruptcy.

Subprime Lending Crisis On Wall Street

Subprime mortgages are a recent phenomenon in the US economy. Status speaks that there has been a rise of nearly 21 per cent subprime mortgages from 2004 to 2006. A total of $600 billion credit was spent as subprime mortgage loan in 2006. Beginning of the year 2006 witnessed a sudden rise in the velocity of subprime mortgage and this has led many subprime mortgage lenders to fail in business and file for bankruptcy. Failure of these leaders has also led stock prices of $6.5 trillion worth mortgage securities market to meltdown. This was a threat to the US economy as well as the US housing market. Prime reason for downfall is falling home prices in US, since 2005. Recent cases like Lehman Brothers, AIG and Bear Stearns are all examples of failed subprime mortgages.


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Definition Sources


Definitions for Subprime Lending are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 2nd April, 2020 | 0 Views.