Sub Prime Loan Law and Legal Definition

A sub-prime loan is a loan to borrowers that do not qualify for mainstream or A-paper loans because of their poor credit history or uncertain job circumstances. The sub prime loan has a higher interest rate because of the higher risks that the lender is taking with the unqualified borrower. They are loans with less stringent lending and underwriting terms and conditions. These loans charge higher interest rates and fees. The specific amount of interest charged on a sub prime loan is not fixed. Different lenders may value a borrower's risk in different manner. Sub-prime lenders were traditionally smaller financial institutions and independent banks, but now major traditional banks in U.S. have also been offering sub prime loans. Sub prime loans are also called b-paper, second chance loans and near-prime loans.