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.

RELATED TERMS
  1. Subprime Market

    The market for lenders and borrowers of subprime credit, a credit ...
  2. Subprime Mortgage

    A type of mortgage that is normally made out to borrowers with ...
  3. Subprime Rates

    Interest rates charged to subprime borrowers, such as on loans ...
  4. Subprime Loan

    A type of loan that is offered at a rate above prime to individuals ...
  5. ABX index

    A financial benchmark that measures the overall value of mortgages ...
  6. Subprime Lender

    A type of lender that specializes in lending to borrowers with ...
Related Articles
  1. Personal Finance

    What is a Subprime Mortgage?

    Subprime mortgages are offered to borrowers with low credit ratings, usually 600 or below.
  2. Investing

    Subprime Lending: Helping Hand or Underhanded?

    These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
  3. Investing

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  4. Insights

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  5. Small Business

    The 2007-08 Financial Crisis In Review

    Subprime lenders began filing for bankruptcy in 2007 -- more than 25 during February and March, alone.
  6. Personal Finance

    Credit Cards For People With Bad Credit

    Yes, you can get a credit card and start repairing your credit history. But brace yourself for low credit limits, sky-high interest and staggering fees.
  7. Personal Finance

    Rate Freeze To Cool Mortgage Meltdown

    The U.S. government is offering help to subprime borrowers. Is this a cure or a curse?
  8. Personal Finance

    Finding the Best Mortgage Rates in 2017

    As home-buying technology has progressed, the process of finding the best mortgages rates can all be done online. Here's how:
  9. Insights

    Subprime Debacle: Lenders See Rising Losses (SC)

    The delinquency rate on auto loans has increased every month since February, a sign that rising losses may be ahead
  10. Personal Finance

    Are U.S. Banks Becoming Aggressive on Lending Again?

    Discover why banks are increasing their credit portfolios to include more credit cards and how this may impact your ability to borrow in the future.
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. What are the similarities and differences between the savings and loan (S&L) crisis ...

    Learn about some of the similarities and differences between the savings and loan crisis and the subprime mortgage crisis ... Read Answer >>
  4. How does the American Housing Rescue and Foreclosure Prevention Act of 2008 affect ...

    The passage of the American Housing Rescue and Foreclosure Prevention Act of 2008 at the end of July 2008 made about $15 ... Read Answer >>
  5. How does a credit crunch occur?

    A credit crunch occurs when there is a lack of funds available in the credit market, making it difficult for borrowers to ... Read Answer >>
  6. What is happening during a risk repricing?

    During a strong bull market, the market's overall sense of optimism can often lead to poor estimates about the level of risk ... Read Answer >>
Trading Center