Business, Legal & Accounting Glossary
A subprime loan is a loan given to a borrower at an interest rate higher than the prime rate. When a borrower has a low credit score, he may not qualify for a traditional loan, though he may qualify for a subprime loan. A subprime loan is also used when a borrower with decent credit prefers not to disclose his financial information. A borrower with high-interest rate credit card debt can also opt for a subprime loan to save on interest payments. A subprime mortgage, a subprime credit card, or a subprime auto loan are all forms of a subprime loan. Subprime loan rates and terms and conditions of a subprime loan can vary significantly between lenders. In early 2007, the subprime loan market, in particular, the subprime mortgage market, came under intense scrutiny when the subprime crisis began with a sharp increase in home foreclosures and subprime loan providers declaring dramatic losses or bankruptcy in some cases. This was the beginning of a major subprime crisis that ultimately affected other sectors of the US economy.
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This glossary post was last updated: 6th February, 2020