Subprime lending
Loans to people with higher credit risk / From Wikipedia, the free encyclopedia
"Subprime" redirects here. For the 2007 house mortgage crisis, see Subprime mortgage crisis.
In finance, subprime lending (also referred to as near-prime, subpar, non-prime, and second-chance lending) is the provision of loans to people in the United States who may have difficulty maintaining the repayment schedule.[1] Historically, subprime borrowers were defined as having FICO scores below 600, although this threshold has varied over time.[2]
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These loans are characterized by higher interest rates, poor quality collateral, and less favorable terms in order to compensate for higher credit risk.[3] During the early to mid-2000s, many subprime loans were packaged into mortgage-backed securities (MBS) and ultimately defaulted, contributing to the financial crisis of 2007–2008.[4]