What does “subprime lending” refer to?

Subprime lending specifically refers to the practice of offering loans to borrowers whose credit histories do not meet the standards of conventional lending. Typically, these borrowers may have low credit scores, which signifies a higher risk for lenders. As a result, subprime loans often come with higher interest rates compared to prime loans to compensate for the increased risk associated with lending to individuals with a history of credit issues.

This type of lending plays a significant role in providing access to credit for those who may otherwise be unable to obtain financing through traditional means. It is important to understand the characteristics of subprime lending, as it often involves additional scrutiny and specific terms tailored to accommodate the borrower's financial situation.

Other options involve categories of lending that do not align with the definition of subprime lending, such as lending to borrowers with excellent credit, government-backed programs, or corporate clients, which are not the focus of subprime lending practices.