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Subprime Lender

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Definition of 'Subprime Lender'

A type of lender that specializes in lending to borrowers with a tainted or limited credit history. Subprime lending is more concentrated in a smaller number of large lenders than prime lending. The subprime loan market is more tiered compared to the prime loan market, where terms and rates vary little between borrowers.
Investopedia Says

Investopedia explains 'Subprime Lender'

Subprime lenders use a risk-based pricing system to calculate the terms of loans, including the interest rate, which they offer to borrowers with varying credit histories. The securities issued by subprime lenders tend to carry more credit risk but less interest rate risk than securities backed by prime loans. This is because subprime borrowers tend to have a shorter time horizon and fewer opportunities to refinance when interest rates fall.

Related Definitions

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    Subprime

    A classification of borrowers with a tarnished or limited credit history. Lenders will use a credit scoring system to determine which loans a borrower may qualify for. Subprime loans ...
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  • Prime

    A classification of borrowers, rates or holdings in the lending market that are considered to be of high quality. This classification is placed on those borrowers that are deemed to be ...
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  • Mortgage

    A debt instrument that is secured by the collateral of specified real estate property and that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are ...
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    • Credit Rating

      An assessment of the credit worthiness of individuals and corporations. It is based upon the history of borrowing and repayment, as well as the availability of assets and extent of ...
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    • Credit Risk

      The risk of loss of principal or loss of a financial reward stemming from a borrower's failure to repay a loan or otherwise meet a contractual obligation. Credit risk arises whenever a ...
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    • Interest Rate Risk

      The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other ...
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    • Predatory Lending

      Unscrupulous actions carried out by a lender to entice, induce and/or assist a borrower in taking a mortgage that carries high fees, a high interest rate, strips the borrower of equity, ...
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    • 3/27 Adjustable-Rate Mortgage - 3/27 ARM

      A type of adjustable-rate mortgage (ARM) frequently offered to subprime borrowers. These mortgages are designed as short-term financing vehicles that give borrowers time to repair their ...
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    • Problem Loan

      In the banking industry, a problem loan is one of two things; it can be a commercial loan that is at least 90 days past due, or a consumer loan that it at least 180 days past due. This ...
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    • Second Chance Loan

      A type of loan associated with subprime lending and borrowers with a tainted credit history. Second chance loans offer a borrower a chance to rebuild their credit history. Although ...
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