A subprime loan is a loan made to someone who wouldn’t or couldn’t qualify for a loan and is set as a defaulter from a financial institution using existing credit law as set out as guidelines for safe lending practices under existing legislation. This legislation is either Federal or State law.
There are several reasons as to why a person may not qualify for a loan under standard credit lending criteria but this wouldn’t stop a less ethical institution from making the loan. However, they would have, and did have, exorbitant loan repayment schedules that the mortgagees weren’t able to comply with to meet their monthly mortgage payments.
Taking out any monetary loan is a business decision. If the loan is to be repaid over twenty five years then that means that you will be paying that bank or that financial institution money every month for the next quarter century.
This is where I think a lot of people have forgotten to remember. And a subprime loan is made on the agreement that the person accepting the loan will be paying a lot more money back to the mortgager than that originally borrowed because they have accepted the money on a higher interest rate and some of these loan repayments have been made with minimal payments in the beginning because then the interest is accrued on the biggest amount of the loan.