Understanding the Subprime Loans

The subprime loans are targeted at the poor credit consumers. However, some are genuine efforts to help the low credit borrowers; others are no more than just “predators. Know all about these Subprime loans to avoid further financial trouble.


Subprime loans are also referred to as second chance lending. Sometimes the people take loans and find it difficult to repay it. Such loans with bad credit are lent to those people who find difficulty in making the repayment schedule. These hardships can take place due to many circumstances like ill health, divorce, unemployment, etc. These loans can be about anything, late pays, collections, judgments, bankruptcy, or too much debt.

Like any other loan, the subprime loans also consists of the principal amount that one borrows along with the adequate amount of interest that is charged. However, the rate of interest is relatively high in subprime loans as compared to any other loan because of the obvious fact that the borrowers of the subprime loans are usually the ones who have poor credit history.

The Subprime loans, are targeted specifically for the borrowers having weak credit histories and higher risk of the defaulters.


  • Subprime loans make it possible for the persons who do not qualify for the terms and conditions of convectional loans (due to their bad credit history) to have their own homes.
  • Subprime loans are available to people who have gaps between employment periods.
  • The terms of the subprime loans are more lenient and convincing than other convectional loans.
  • These consumers have an added advantage of being able to talk to their lenders openly about their past credit issues, and are granted the loan in order to fulfill their requirements.


Although subprime loans fulfill the dreams of many bad credit consumers and make it possible for many buyers to have their own homes, these subprime loans are highly criticized and have many drawbacks.

  • Subprime loans tend to cost a lot more than convectional loans no credit check. As the subprime loans cover most of the defaulters, hence their rates of interest are also higher.
  • Many subprime loans have unfavorable conditions as compared to other convectional loans in market. They often have rules and regulations, which do not qualify the credit worthiness of the buyers.
  • Subprime loans aims at the people having poor or adverse credit background, and hence are termed as ‘predator loans’.


The subprime mortgage crises hit the U.S. economy in 2008, and had brought along with it, a great economic depression. The series of events began from 1990’s and showed the impact in late 2000’s. The mortgage underwriting process underwent a huge change even the loans with inadequate documents were sanctioned without any proper review. Such relaxation of norms in granting loans had a huge negative overall impact on the economy. Suddenly there was an increased demands for loans, many people with insufficient incomes began to apply for loan in order to have the home of their own and all this happened at the time when the prices of real estate was soaring high. People signed mortgage papers and purchased the house but failed at the time of repayment of the debt, due to which many financial giants like AIG and Lehman Brothers declared themselves as bankrupt.

The crises had long lasting impact on the U.S. economy and the Economy of European Countries as well. The U.S economy went into deep recession and around 9 million jobs were lost.  At the starting of 2013, many stock markets recovered but most of the housing bank sectors are still finding their way back, the housing projects remain near their low points and unemployment remains elevated.

Many Subprime ending institutions have the sincere desire to help the unprivileged section of the society and they follow fair lending practices. Whereas other subprime lenders follow the predator attitude by charging the unjustified fees and interest for the risk they are undertaking. However, the lenders who participate in ill practices are subject to fines and penalties.


Posted in: Loans