Subprime Lender

Term For Today: Subprime Lender

A type of lender which specializes in lending to borrowers with a tainted or limited credit history. Subprime lending is more concentrated in a fewer number of large lenders than is prime lending. The subprime loan market is more tiere compared to the prime loan market where terms and rates vary little between borrowers.

Subprime lenders use a risk-based pricing system to calculate the terms of loans, including the interest rate, which they offer borrowers with varying credit histories. The securities issued by subprime lenders tends to carry more credit risk, but less interest rate risk than do securities backed by prime loans. This is because subprime borrowers tend to have a shorter time horizon and fewer opportunities to refinance when interest rates fall.