Sub-Prime Lending
Also called ?B/C Paper,? ?near-prime,? or ?second chance? lending, is a general term
that refers to the practice of making loans to borrowers who do not qualify for market
interest rates because of problems with their credit history. A sub-prime loan is
one that is offered at a rate higher than A-paper loans due to the increased risk.
Sub-prime lending encompasses a variety of credit instruments, including sub-prime
mortgages, sub-prime car loans, and sub-prime credit cards, among others.
Sub- rime lending is typically defined by the status of borrowers. A sub-prime loan
is a loan made to someone who could not qualify for a more favorable rate. Sub-prime
borrowers typically have low credit scores and histories of payment delinquencies,
charge-offs or bankruptcies. Because sub-prime borrowers are considered at higher
risk to default, sub-prime loans typically have less favorable terms than their traditional
counterparts. These terms may include higher interest rates, regular fees or an up-front
charge.
Proponents of the sub-prime lending in the United States have championed the role
it plays in extending credit to consumers who would otherwise not have access to the
credit market. But opponents have criticized the sub-prime lending industry
for predatory practices such as targeting borrowers who did not have the resources
to meet the terms of their loans over the long term. These criticisms have increased
since 2006 in response to the growing crisis in the U.S. sub-prime mortgage industry,
wherein hundreds of thousands of borrowers have been forced to default, and several
major sub-prime lenders have filed for bankruptcy.
This weblog is sponsored by Ovation Law.