Subprime Market

DEFINITION of 'Subprime Market'

The market for lenders and borrowers of subprime credit, a credit that is lent to people of questionable or limited credit histories. Includes the business of subprime mortgages, subprime auto loans and subprime credit cards, as well as various securitization products that use subprime debt as collateral.

Subprime borrowing comes with a higher interest rate than for borrowers with good credit ratings, as the risk of default is much higher.

BREAKING DOWN 'Subprime Market'

The subprime market can be a profitable one for lenders as they can demand higher interest rates, and as long as borrowers are able to repay their loans. Subprime lending is also less susceptible to interest rate swings because subprime borrowers usually don't have the option to refinance debt until their credit rating improves.

The health of the subprime market is highly dependent on the strength of the overall economy; if people can generally find work and earn a decent wage, they are more likely to repay their debts. Subprime lending can dry up very fast in a weakening economy, as lenders collectively will avoid taking excess credit risks.

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