Subprime- What Does that Even Mean?

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You may hear or have heard the term subprime tossed around by people in the financial industry. But what does subprime really mean? According to Wikipedia.com, subprime in finance means, making loans to the people in the riskiest category of consumer loans and subprime loans are typically sold in a very different market when compared to traditional loans.

The class of "subprime" has only been around since the early 1990's, and currently 25% of the U.S.'s population falls into this category. In 1998 the FTC (please insert hyperlink to article 12 on the FTC), estimated that $125 billion of the $859 billion total, mortgage dollars were subprime.

Many lenders are willing to take on the higher risk of lending to "high-risk" or "subprime" customers, however, these lenders offset their losses, which are higher in the subprime loan market vs. the traditional loan market, by charging higher-than-average interest rates. Subprime lending has become so main stream that you can pretty much find a subprime lender in any financial loan market, including, mortgage, credit cards, cars, etc.

payday loans are a lot of time associated with subprime lending, but not everyone who uses payday advances, are considered a subprime borrowers. While, true most people who utilize payday loans are attracted to them because they DON'T use traditional credit scores as a requirement of being approved for a loan, some customers just prefer not to have their credit check for a two-week loan, or open ANOTHER credit card, if they are already in credit card debt. In a nut shell if people use payday loans they cannot automatically be assumed to have subprime credit. People's attraction to payday loans vary and without knowing that person's credit history, the assumption that they are a subprime borrower cannot accurately be made.

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