subprime

Subprime refers to borrowers or debt products that carry higher credit risk than prime (standard) offerings. Subprime borrowers typically have lower credit scores, shorter or troubled credit histories, higher debt-to-income ratios, or a history of delinquencies. In lending markets, "subprime" describes loans extended to these higher-risk borrowers, often at higher interest rates and with more stringent or flexible terms than prime loans. The term is used across credit types, including mortgages, auto loans, personal loans, and credit cards. The definition of subprime varies by lender and jurisdiction, but it generally denotes riskier credit profiles.

Subprime lending emerged in the late 1990s and expanded in the early 2000s, especially in the mortgage market. Lenders price risk into the loan through higher rates, fees, and sometimes less favorable terms. Subprime loans may include features such as payment options that increase the principal balance, balloon payments, or interest-only periods. Securitization of subprime mortgages into mortgage-backed securities and collateralized debt obligations helped spread risk but also obscured it, contributing to rapid growth and, in some cases, weaker underwriting standards.

The subprime mortgage crisis of 2007–2008, marked by rising defaults and foreclosures, highlighted the risks of subprime lending and complex securitization. The episode led to extensive regulatory reform and closer oversight of mortgage lending. In the United States, reforms under the Dodd-Frank Act and the establishment of the Consumer Financial Protection Bureau aimed to improve underwriting standards, increase transparency, and retain some risk on lenders' books.

Today, subprime remains a recognized category of higher-risk credit, but thresholds and practices vary by market. Subprime lending is more tightly regulated in many jurisdictions, and lenders increasingly use benchmark scores, income verification, and other criteria to manage risk. The term is sometimes viewed as pejorative, with more neutral descriptors such as near-prime used in certain contexts.