Glossary of Business Terms - Subprime Loans |
Subprime
Lending : Is a type of lending
commonly used in the United
States of America by borrowers that
would not usually qualify for a regular
loan.
A
subprime loan is a loan to borrowers that
do not qualify for mainstream or A-paper
loans because of their poor credit history
or uncertain job circumstances. The subprime
loan has a higher interest rate because
of the higher risks that the lender is taking
with the unqualified borrower.
Sub-prime lenders were traditionally smaller
financial institutions and independent banks,
but now major traditional banks in the United
Kingdom and United States have also been
offering subprime loans
and mortgages (often they are operating
under a different name to the parent company).
Problems in the subprime market began to
arise in the United States after a real
estate boom prompted financial companies
to aggressively market subprime mortgages
to borrowers that did not have the capacity
to repay the loan. The American
subprime crisis in 2007 created billions
of dollars in losses and affected stock
markets and financial markets around the
world.
Also called : B-Paper, Second Chance
loans, Near-prime, and Sub prime.
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