Subprime Loan
Q:What is the definition of subprime loan?
A:A subprime loan means lending the amount below the ‘prime’ rate of interest to people with low credit ratings. Thus it is given to people with an imperfect credit profile or the ones that are likely to be defaulters. This makes the recovery of a subprime loan very risky for the financial institutions, which lend these kinds of loans. Subprime lendings come in two forms: credit cards and mortgages.
Content:
This type of lending system evolved during 1993, when the financial institutions realized that there was a high demand for loans despite low creditworthiness. In a frenzied urge to earn more, the banks began lending below the prime rate even though many borrowers qualified for prime loan bracket. Today around 25% of the population of America falls under the category of subprime loan borrowers. The purpose of borrowing such loans is property purchases, cars purchases, remodeling homes, meeting living expenses or even repaying the high interest on credit cards. Read the rest of this entry »
