Subprime

Full definition

Subprime refers to credit quality below what major lenders consider 'prime' - creditworthy borrowers who qualify for competitive rates. The exact cutoff varies by lender, but a FICO score below 620 is widely considered subprime; 620-659 is sometimes called near-prime or non-prime. History: The term gained notoriety during the 2007-2008 financial crisis when subprime mortgage loans packaged into securities collapsed in value. Subprime lending in personal loans is less systemically risky but still carries high default rates relative to prime. Subprime personal loan market: Lenders who serve subprime borrowers include OneMain Financial, Avant, OppFi, and regional credit unions. Rates typically range from 18%-36% APR. Loan amounts are usually limited to $1,000-$15,000 for borrowers in this tier. Some states cap rates at 36% (including fees), which effectively limits the subprime market in those states. Borrower perspective: Being labeled 'subprime' is not permanent. Credit scores improve as negative marks age off (7 years for most derogatory items) and positive payment history accumulates. A borrower who takes a subprime loan, makes all payments on time for 12-24 months, and addresses the underlying credit issues (high utilization, collections, etc.) may move into prime territory within 2-3 years. Predatory lending risk: Subprime borrowers are frequently targeted by predatory lenders. Warning signs include: rates above 36% APR, mandatory add-on insurance products, balloon payments, prepayment penalties, or lenders that don't check your ability to repay.

• Credit score
• APR (Annual Percentage Rate)
• Origination fee