Definition of Subprime loan:
When banks lend each other money in the middle of the night to cover their reserve requirements, they charge each other the prime rate, an interest rate based on the federal funds rate established by the Federal Open Market Committee of the Federal Reserve Bank. As the Fed's website explains it, "Although the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate--the rate that banks charge each other for short-term loans--established by the Federal Open Market Committee.".
A loan with elevated fees and interest, given to someone with a lower credit score.
A subprime loan is a type of loan offered at a rate above prime to individuals who do not qualify for prime-rate loans. Quite often subprime borrowers have been turned down by traditional lenders because of their low credit ratings or other factors that suggest they have a reasonable chance of defaulting on the debt repayment.
How to use Subprime loan in a sentence?
- Subprime borrowers generally have low credit ratings or are people who are perceived of as likely to default on a loan.
- Subprime loans have interest rates that are higher than the prime rate.
- Subprime interest rates can vary among lenders, so it’s a good idea to shop around before choosing one.
Meaning of Subprime loan & Subprime loan Definition