Subprime Lending
Subprime lending is the act of lending to borrowers of high risk. Subprime loans are approved for those with high debt ratios, little to no debt history, excessive debt history, missed payment habits, and defaults. Subprime lending can also be called near prime, non-prime, and second chance lending.
Subprime lending allows lenders to make more money on a high risk loan. Since the borrower has a higher risk of defaulting on the loan, the lender assumes more risk with the benefit of earning more income from the risk taken. This lending category allows those with credit problems the opportunity to borrow for homes while simultaneously allowing the borrower to improve their credit history if they maintain payments on the loan. A subprime remortgage often has the opportunity for the borrower to refinance into regular rates after a few years if the borrower maintains a good payment history.