Subprime refers to the range of credit scores below those preferred by lenders. Colloquially, it refers to risky or less-than-ideal loans.
Subprime originally referred to the range of credit scores that fell below a certain, desirable level. Loan applicants with these lower credit scores were assumed to be at higher risk of default because of previous defaults, bankruptcy, non-existent debt history, or extensive outstanding debt, and thus would be expected to pay a higher APR. It has never been very carefully defined, and has often been used whenever the writer or speaker wants to evoke a less-than-ideal lending situation.
Mortgage loans made to subprime borrowers were one component of the housing bust that began in 2007 and the subsequent financial crisis. Another common use of the term among investors is in reference to uncollectable debts on the balance sheets of irresponsible investment banks and other financial institutions.
Related Fool Articles
Recent Mentions on Fool.com
- Why Two Harbors Investment Corp Isn't Scared of Higher Interest Rates
- Recall Costs Clobber General Motors Earnings Again
- Is Another Financial Crisis Coming Down the Road?
- Wells Fargo is Losing Speed in Auto Lending
- How Two Harbors Investment Corp Embraced Adaptation For Big Success
- Is Another Mortgage Crisis Coming Soon?