What defines a subprime loan?

A subprime loan is specifically designed for borrowers who have poor credit histories or limited credit records. These borrowers may have a higher risk of default due to their past financial behaviors, which can include late payments, bankruptcies, or foreclosures. As a result, subprime loans typically come with higher interest rates to compensate for the increased risk that lenders assume. This type of loan allows individuals who might not qualify for a standard loan to obtain financing.

The other options reflect different types of loans that do not pertain to the subprime classification. For example, loans to borrowers with excellent credit are classified as prime loans, and those linked to high-valued properties may be considered jumbo loans or other types of secured loans. Meanwhile, loans exclusively for first-time homebuyers typically have specific features and benefits aimed at assisting new buyers, rather than focusing on the creditworthiness of the applicant.