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.

RELATED TERMS
  1. Subprime Market

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

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

    A type of loan that is offered at a rate above prime to individuals ...
  4. Subprime

    A classification of borrowers with a tarnished or limited credit ...
  5. Subprime Lender

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

    A type of mortgage that is normally made out to borrowers with ...
Related Articles
  1. Investing

    How Will The Subprime Mess Impact You?

    The subprime collapse could mean doom and gloom for housing, equities and the overall economy.
  2. Investing

    The Next Big Short: Subprime Auto (NICK)

    Economists are increasingly concerned about the subprime loan industry. But this $1.1 trillion bubble has nothing to do with housing.
  3. Personal Finance

    What is a Subprime Mortgage?

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

    Value of Subprime Credit Card Debt in Debate

    Many banks are easing out of subprime credit card debt while other financial institutions see opportunity.
  5. Investing

    Who Is To Blame For The Subprime Crisis?

    From lenders to buyers to hedge funds, it appears everyone has blood on their hands.
  6. Personal Finance

    Subprime Auto Delinquency Rates on the Rise (NICK, CPSS)

    Fitch Ratings reports that delinquency rates for auto loans are nearing 2008 crisis level. What's driving the surge of default? Subprime loans, of course.
  7. Insights

    The 2007-08 Financial Crisis In Review

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

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  9. Personal Finance

    Where Americans With the Best and Worst Credit Scores Live

    Mississippi and Georgia have a high percentage of people with poor credit scores, while North Dakota has the lowest
  10. 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
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. 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 >>
Hot Definitions
  1. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  2. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  3. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
  4. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
  5. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  6. Risk Averse

    A description of an investor who, when faced with two investments with a similar expected return (but different risks), will ...
Trading Center