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.

RELATED TERMS
  1. Subprime Credit

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

    A person who is considered a higher-than-normal credit risk. ...
  3. Subprime Lender

    A type of lender that specializes in lending to borrowers with ...
  4. Subprime Loan

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

    A classification of borrowers with a tarnished or limited credit ...
  6. Subprime Auto Loan

    A type of auto loan approved for people with substandard credit ...
Related Articles
  1. Economics

    What is a Subprime Mortgage?

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

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  3. Investing News

    Subprime Auto Loans: What Borrowers Should Know

    Are subprime auto loans a disaster waiting to happen?
  4. Home & Auto

    When Getting a Rent-to-Own Car Makes Sense

    If your credit is bad, rent-to-own may be a better way to purchase a car than taking out a subprime loan – or it may not be. Get out your calculator.
  5. Credit & Loans

    5 Ways Bad Credit Screws Up Your Life

    When your credit score slumps, many other things in your life can also start to slide downward. How to recognize the situation and start dealing with it.
  6. Stock Analysis

    Lessons In Leverage

    Greed is alive and well and living in subprime mortgages.
  7. Credit & Loans

    The Basics Of Lines Of Credit

    Lines of credit are potentially useful hybrids of credit cards and normal loans. Learn how a line of credit can help (and hurt) your finances, and how to find the best one to suit your needs. ...
  8. Markets

    Credit Card Balances Will Reach $1 Trillion This Year

    In a sign that the economy is improving, credit card balances are expected to reach $1 trillion this year.
  9. Credit & Loans

    Understanding Credit Risk

    Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt.
  10. Credit & Loans

    What is an Alt-A Mortgage?

    Called "liar loans" for their low documentation requirements, Alt-A mortgages were hot until the subprime crisis. Now Wall Street wants to bring them back.
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 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 >>
  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 >>
  5. What is a liquidity squeeze?

    A liquidity squeeze occurs when a financial event sparks concerns among financial institutions (such as banks) regarding ... Read Answer >>
  6. 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 >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center