What is the definition of subprime lending?

Subprime lending is defined as credit extended to borrowers who have poor credit histories or lower credit scores. This category of loans typically comes with higher interest rates compared to prime lending to compensate for the increased risk associated with lending to individuals who are considered less likely to repay their debts.

Borrowers classified under subprime lending often face difficulties in obtaining credit from traditional lenders due to their credit histories, which may include late payments, defaults, or bankruptcies. As a result, lenders may require specific conditions or offer loans with higher interest rates to offset the risk of default.

The other options describe different types of lending scenarios. For instance, loans with very low interest rates would generally be associated with prime borrowers, and credit granted to new borrowers without a credit history doesn’t necessarily fall under the subprime category since the risk assessment would be different. Home equity loans specifically targeting high-income clients refers to a more niche market, which also does not align with the fundamentals of subprime lending.