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
- Is This Move By Fannie Mae and Freddie Mac a Mistake?
- How to Fix the Disturbing Regularity of Big Bank Misbehavior
- Easier Mortgages Are Coming Back -- Will They Boost the Housing Market or Cause Another Crash?
- Think Banks Have Gotten Safer? Think Again
- General Motors Earnings Beat Estimates With Strong Margins
- Why "Set It and Forget It" Doesn?t Work for Retirement Savings