Subprime Borrower

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Foreclosure - FCL

    A situation in which a homeowner is unable to make principal ...
  2. Subprime Meltdown

    The sharp increase in high-risk mortgages that went into default ...
  3. Delinquent Mortgage

    A mortgage for which the borrower has failed to make payments ...
  4. Underwater Mortgage

    A home purchase loan with a higher balance than the free-market ...
  5. Distressed Borrower

    A borrower who is unable to fully repay his or her debt due to ...
  6. FICO Score

    A type of credit score that makes up a substantial portion of ...
Related Articles
  1. Credit & Loans

    New Credit Scoring Forgives Small Debt

    FICO 08 means that certain types of old debt won't affect your credit score, but it's not all good news.
  2. Retirement

    Conduct A Financial Intervention

    Find out what you can do to help someone who is finanically out of control.
  3. Credit & Loans

    5 Keys To Unlocking A Better Credit Score

    Follow these tips and techniques to rebuild a ruined credit rating.
  4. Credit & Loans

    A Guide To Debt Settlement

    Find out how you can negotiate your way to a lower debt load by paying up front.
  5. Budgeting

    Debt Consolidation Made Easy

    These five steps can help get you out of debt faster and easier than you'd ever imagined.
  6. Credit & Loans

    Take Control Of Your Credit Cards

    The plastic in your wallet doesn't have to hurt your finances. Learn how to manage it responsibly.
  7. Credit & Loans

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  8. Professionals

    Why Bad Credit Is Bad For Financial Careers

    In order to obtain and maintain a career in the financial industry, it is also important to have a clean credit report.
  9. Credit & Loans

    How Credit Cards Affect Your Credit Rating

    The average American household has four cards, but does that mean more is better?
  10. Options & Futures

    How To Establish A Credit History

    Can't get a credit card without a credit history, and can't get a history without a card? Break the Catch-22.

You May Also Like

Hot Definitions
  1. Risk-Free Rate Of Return

    The theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would ...
  2. Scarcity

    The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, ...
  3. Trust Fund

    A trust fund is a fund comprised of a variety of assets intended to provide benefits to an individual or organization. The ...
  4. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  5. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
  6. Boston Snow Indicator

    A market theory that states that a white Christmas in Boston will result in rising stock prices for the following year. For ...
Trading Center