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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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. Are subprime mortgages still available for homeowners?

    Buying homes became increasingly difficult after the housing bubble burst. Since then, subprime mortgages have been making ... Read Answer >>
  3. 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 >>
  4. What role did securitization play in the U.S. subprime mortgage crisis?

    Learn how the securitization of sub-prime mortgages into asset-backed securities fueled the real estate market crash in 2 ... Read Answer >>
  5. 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 >>
  6. What is a liquidity squeeze?

    A liquidity squeeze occurs when a financial event sparks concerns among financial institutions (such as banks) regarding ... Read Answer >>
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