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Subprime Lending is basically second chance lending. This enables a consumer to acquire a loan at a higher interest rate. Subprime lending a financial terminology that derived from the “Credit Crunch of 2007” and also consists of financial institutions lending to consumers without meeting ‘prime’ standards which causes the end result to be loans being placed in the most dangerous categories of consumer loans mostly sold in the secondary market. These benchmark standards are based on the size of the borrower’s loan, the ratio of borrower’s debt to income or assets, ratio of borrower’s loan to value or collateral, the structure of the loan being ‘traditional’ or ‘non traditional,’ if the documentation stated by Fannie Mae or Freddie Mac does not meet the requirements for a prime mortgages; are non-conforming. When borrowers are applying for other loans certain flags are listed on your credit report that states that you are a subprime borrower and there are also indications of higher default rates, modest debt experience, a history of late or missed payments, bankruptcies, and excessive debt.

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