QandAs: Loans

What is a Sub Prime Borrower?

Answer:
A sub prime borrower is an individual whose

credit history indicates to lenders that he or she has a high risk of defaulting on a loan. Those who are considered sub prime borrowers may still be able to qualify for loans, but the fees and interest rates they are required to pay are likely to be higher than those paid by individuals considered to be better risks.

Many factors are used to determine if an individual is considered to be a sub prime borrower. One of the most important factors is an individuals credit rating. Those who have credit scores of 660 or lower typically fall into this category. Lenders also look at a person's history of repaying debts in a timely manner, income, debt ratio, and other factors.

For example, those who have more than two late payments of thirty days within a twelve month period showing on their credit reports may be considered sub prime. Having even one 60 day delinquency during a two year period can cause an individual to be seen as a credit risk. Individuals who have had a charge-off or foreclosure within the last two years are considered sub prime borrowers, as are those with bankruptcies within a five year period.