المقرض الفرعي هو كيان مالي أو مؤسسة تقدم قروضًا لمقترضين، لكنه يعتمد على رأس المال أو التمويل من مقرض رئيسي أكبر. بشكل عام، المقرض الفرعي يلعب دور الوسيط بين المقرض الرئيسي والمقترض النهائي، حيث يقوم بتوزيع القروض وتقديم شروط تمويل ملائمة. يمكن أن تشمل هذه الكيانات البنوك المحلية، أو شركات التمويل، أو جهات أخرى تقدم خدمات التمويل بشكل مباشر للأفراد أو الشركات.

The subprime lender is a lender that offers loans to borrowers at a subprime interest rate, which is significantly higher than the typical prime interest rate. The subprime lender provides loans to borrowers with poor credit histories and imposes a higher interest rate to compensate for the risks of lending to them.

Definition and Examples of Subprime Lenders

Subprime lenders are lenders that offer loans at higher interest rates to subprime borrowers because they are considered to be at higher risk.

There are two main types of interest rates: prime and subprime rates. Prime rates are offered to borrowers with higher credit scores and a clean repayment history. Subprime interest rates, which are usually significantly higher, are offered to borrowers with lower credit scores, insufficient proof of income, or those who have previous bankruptcies or evictions.

Note: high-risk borrowers often have to rely on subprime lenders if they need financing but do not meet the loan conditions of traditional lenders. Subprime borrowers are generally those with a credit score below 619.

Financial characteristics of high-risk borrowers may also include:

• Bankruptcy in the past five years
• High debt-to-income ratio
• Two payment delinquencies of more than 30 days within the past 12 months or one payment delinquency of more than 60 days within the past 24 months

Subprime lending practices are very common in mortgage loans and auto loans.

Subprime Mortgages

The subprime lender offers potential homebuyers mortgages that carry interest rates significantly higher than the average interest rates. For example, mortgage rates for a fixed-rate 30-year loan were around 2.9% in September 2021. A buyer with an excellent credit record may receive a rate close to that from a traditional lender, but a borrower with a bad credit record may receive a rate ranging from 10% to 18% on a subprime mortgage.

Note: some subprime mortgages may have other features that affect your rate, such as an adjustable rate that may increase over the loan period, ultimately increasing the overall cost.

Subprime Auto Loans

Auto loans from subprime lenders can significantly increase the total cost of the loan. For borrowers with exceptionally bad credit, or “deep subprime” borrowers with credit scores below 580, they may face interest rates exceeding 20% on a used car loan.

Here is how those rates compare with auto loan rates for other borrowers, according to Experian data:

• Borrower (Credit Score) Average Rate for New Car Loan Average Rate for Used Car Loan
• Deep Subprime (579 or lower) 14.39% 20.45%
• Subprime (580 to 619) 11.92% 17.74%
• Non-prime (620 to 659) 7.65% 11.26%
• Prime (660 to 719) 4.68% 6.04%
• Super Prime (720 or higher) 3.65% 4.29%

Potential Risks of Subprime Loans

Although subprime lenders and their rates make loans available to high-risk borrowers who need a vehicle, they also have drawbacks that consumers should take into consideration. The terms of those loans can become difficult for borrowers to meet and lead them into further financial trouble.

When a borrower cannot meet those terms, they may find themselves in default, and could lose their home due to eviction proceedings. Even if the subprime lender presents clear terms to the borrower, the subprime lender may still use exploitative marketing tactics to persuade borrowers to accept the loan.

Note: Remember that it is not a requirement for lenders to offer the best deal to borrowers. High-risk borrowers who are offered subprime loans may sometimes qualify for better terms on prime loans.

How

What Does a Subprime Lender Do?

If the term “subprime” sounds familiar to you, it may be due to the subprime mortgage crisis of 2008. The high cost of housing and a lack of inventory created a demand that subprime lenders were able to meet through subprime mortgages, bundling them into securities and selling them to investors.

When home prices were rising, subprime borrowers and their lenders had the advantage of building equity. If the borrower failed to meet their obligations, the home could be sold, and the lender would not incur a loss. Once home prices peaked, investors became more cautious about those securities, and increasingly, lenders became hesitant to offer them.

The end result was that home prices fell rapidly, and suddenly high-risk borrowers owned homes worth much less than what they had paid, leading to numerous foreclosures and losses for subprime lenders.

Note: Although they contributed to the mortgage crisis and recession in 2008, subprime lenders still offer subprime interest rates to high-risk borrowers. Subprime loans can be beneficial for some borrowers who have no other financing options. However, clients should be aware that lenders may use predatory tactics to lure high-risk borrowers into agreeing to loans they may not be able to repay. In this way, subprime loans can cause further financial harm.

Takeaway

A subprime lender is a lender who offers loans at subprime interest rates to borrowers who may not qualify for traditional loans, such as subprime credit borrowers. Subprime borrowers typically have credit scores below 619. Interest rates on subprime loans are significantly higher than rates on traditional loans because lenders assume greater risks. It is not the lenders’ duty to offer the best deal to borrowers, so borrowers should inquire about other loan options.

Sources:

• Consumer Financial Protection Bureau. “Borrower Risk Profiles.” Accessed Sept. 16, 2021.
• State of New Jersey Department of Banking and Insurance. “A Homeowner’s Guide to Subprime.” Accessed Sept. 16, 2021.
• Freddie Mac. “Mortgage Rates.” (For Sept. 16, 2021.) Accessed Sept. 16, 2021.
• Experian. “What Auto Loan Rate Can You Get with Your Credit Score?” Accessed Sept. 16, 2021.

Source: https://www.thebalancemoney.com/what-is-a-subprime-lender-5201584