Subprime Lender


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.

BREAKING DOWN '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.

  1. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Problem Loan

    In the banking industry, a problem loan is one of two things; ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change ...
  5. Prime

    A classification of borrowers, rates or holdings in the lending ...
  6. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
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