Subprime Borrower

DEFINITION of 'Subprime Borrower'

A person who is considered a higher-than-normal credit risk. Subprime borrowers typically have a below-average credit history and are penalized for their poor credit with higher interest rates. Subprime borrowers may qualify only for higher-interest mortgages and higher APR credit cards. Subprime borrowers may have an extensive history of late or missed payments, default debt, excessive debt or no property assets that could be used as security. In the United States, subprime borrowers are often identified by having a FICO credit score below 640.

BREAKING DOWN 'Subprime Borrower'

Although subprime lending extends credit to people who may not otherwise qualify, the practice contributed to the subprime mortgage crisis in the U.S. in 2008. Roughly 80% of subprime borrowers were given adjustable-rate mortgages, and when the mortgages went to their higher interest rates, refinancing was difficult due to declining home values. This resulted in widespread mortgage default, foreclosures and the declining values of mortgage-backed securities.

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RELATED FAQS
  1. What is a subprime mortgage?

    A subprime mortgage is a type of loan granted to individuals with poor credit histories (often below 600), who, as a result ... Read Answer >>
  2. How much risk is associated with subprime mortgages?

    Discover the risks associated with subprime mortgages. Find out whether taking out a subprime mortgage on your home is really ... Read Answer >>
  3. Are subprime mortgages still available for homeowners?

    Buying homes became increasingly difficult after the housing bubble burst. Since then, subprime mortgages have been making ... Read Answer >>
  4. What role did securitization play in the U.S. subprime mortgage crisis?

    Learn how the securitization of sub-prime mortgages into asset-backed securities fueled the real estate market crash in 2 ... Read Answer >>
  5. What are the different types of subprime mortgages?

    Clarify your understanding of subprime mortgages. Learn about the different types, how they work and when they might be beneficial. Read Answer >>
  6. What is a liquidity squeeze?

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