subprime loan

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A subprime loan is a loan made to a borrower who is not eligible for the best market rates (known as prime rates), but rather at a higher rate of interest because of increased risk factors. 

Subprime borrowers usually have poor or limited credit histories and are typically perceived as riskier than prime borrowers due to their lack of collateral or low income. In order to compensate for increased risk, lenders charge subprime borrowers a premium.

See also: debt, credit score, mortgage

[Last updated in June of 2022 by the Wex Definitions Team]