Sub prime credit refers to any credit class below what is nicknamed “A paper” in lender parlance.
Assuming there is a scale of credit from A to D, an “A paper” customer represents the top-notch credit class with high credit scores and a flawless repayment record, while a “D paper” represents a customer with severe delinquencies such as foreclosures, bankruptcies, collections, judgments, etc. Sub prime would be anything below an “A.”
Sub prime credit is usually applied to mortgage loans, where your prime credit customers get the best rates and the sub prime customers have higher interest rates and fees associated with their loans due to the increased default risk they present to lenders.
Sub prime credit loans have been blamed by politicians and the media for the great financial meltdown of 2008, and while they certainly played a role, there were a great many factors that contributed to this period of economic upheaval and near-systemic collapse.
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