Glossary
Subprime loan
A loan made to a borrower with a low credit score, priced with a higher rate to offset the added default risk.
Subprime lending serves borrowers — often with scores below roughly 620 — who do not qualify for prime rates. The higher rate compensates the lender for greater default risk, which is legitimate, but the label also attaches to some of the most predatory corners of consumer lending. The line between a fair subprime loan and an abusive one is the total cost: a subprime auto loan at 15% is expensive but rational; a subprime installment loan at 150% is a trap. Always compare on APR.
Related terms
- Reverse mortgage A loan for homeowners 62+ that pays you from your home equity instead of the other way around — repaid when you sell, move out, or pass away.
- Line of credit A revolving credit limit you can draw from, repay, and draw again — you pay interest only on what you actually use.
- PMI Private mortgage insurance — a monthly premium that protects the lender, not you, when your down payment is under 20%.
- Lien A legal claim against property that secures a debt — the lienholder can force a sale to collect if the debt goes unpaid.
- Amortization The schedule that splits each payment between interest and principal. Early payments are mostly interest; the balance flips near the end of the term.
- Credit-builder loan A small loan whose proceeds are held in a locked account while you make payments — designed purely to build a payment history.