Subprime Credit

DEFINITION of 'Subprime Credit'

General term for borrowings of subprime debt, or loans made to people with less-than-perfect credit or short credit histories. Subprime credit includes the original borrowing itself, as well as any derivative products such as securitizations that are based on subprime loans and then sold to investors in the secondary markets.

A big portion of the total market for subprime credit is based on subprime mortgages, or home loans to borrowers of questionable creditworthiness.


BREAKING DOWN 'Subprime Credit'

Subprime credit has highly debated pros and cons; on the plus side it allows people who wouldn't otherwise have access to credit to obtain loans for things like automobiles, homes and credit cards. On the negative side, subprime credit can come with very unfavorable terms based on high interest rates, excessive fees and short grace periods.

Securities that use subprime credit as collateral have become widespread in the marketplace, with billions of dollars in collateralized debt obligations (CDOs) owned by investors that are based on the cash flows from subprime credit.

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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 >>
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    Buying homes became increasingly difficult after the housing bubble burst. Since then, subprime mortgages have been making ... Read Answer >>
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    Discover the risks associated with subprime mortgages. Find out whether taking out a subprime mortgage on your home is really ... Read Answer >>
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  5. 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 >>
  6. What are the different types of subprime mortgages?

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