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.

RELATED TERMS
  1. Subprime Credit

    General term for borrowings of subprime debt, or loans made to ...
  2. Subprime Rates

    Interest rates charged to subprime borrowers, such as on loans ...
  3. Subprime Mortgage

    A type of mortgage that is normally made out to borrowers with ...
  4. ABX index

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

    A type of lender that specializes in lending to borrowers with ...
  6. Subprime Credit Card

    A type of credit card issued to people with substandard credit ...
Related Articles
  1. Markets

    What is a Subprime Mortgage?

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

    Subprime Lending: Helping Hand Or Underhanded?

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

    Who Is To Blame For The Subprime Crisis?

    From lenders to buyers to hedge funds, it appears everyone has blood on their hands.
  4. Markets

    The Rise And Demise Of New Century Financial

    A case study in how poor planning toppled a subprime mortgage giant.
  5. Trading

    The Fall Of The Market In The Fall Of 2008

    How did America's strong economy tumble so quickly? Find out here.
  6. Personal Finance

    Don't Get Overcharged for Your Mortgage

    Don't pay more for a mortgage than necessary. Here’s a quick look at the different categories and how to be sure you're getting the best deal.
  7. ETFs & Mutual Funds

    The 2007-08 Financial Crisis In Review

    If you don't know how the recession began, read on to learn more.
  8. Investing

    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.
  9. Markets

    Credit Crisis: What Caused The Crisis?

    By Brian PerryIn this chapter, we'll examine the causes of the credit crisis, starting with the decline in the housing market that eventually led to increased levels of mortgage defaults. These ...
  10. Personal Finance

    How Your Credit Score Will Affect Your Mortgage Rate

    Your credit score will play a large role in the type of mortgage you are able to get.
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. 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 >>
  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. When did the real estate bubble burst?

    Collapsing home prices from subprime mortgage defaults and risky investments on mortgage-backed securities burst the housing ... Read Answer >>
  5. 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 >>
  6. Why do high profiting sales mitigate credit risk?

    Learn more about credit risk in loaning to individuals and businesses. Understand how credit risk is determined and the impact ... Read Answer >>
Trading Center