A subprime rate is a type of high interest mortgage or other loan rate which has been offered to many people with no down payment and/or poor credit histories, such as past bankruptcies or numerous late payments. The logic behind subprime rates is that the higher interest rate is worth the risk (to the lender) posed by borrowers with problematic credit records.

In theory, this makes it possible for borrowers to gain loans who wouldn’t otherwise qualify for them, and enables lenders to receive interest from a greater number of customers. However, many homes purchased using mortgages with a subprime rate have been foreclosed upon during 2007, causing much difficulty for borrowers and lenders alike. Low home sales and reducing prices have contributed to this, with borrowers unable to resell their homes. Many now feel that offering this type of rate on real estate loans is theoretically flawed, at least in part.

A subprime rate mortgage is not so easily obtained at present (Sept. 2007) as in the past, with some lenders which offered them having filed for bankruptcy and others applying greater scrutiny to potential borrowers’ credit records. Vehicles purchased at subprime rates are also being repossessed in increasing numbers; according to a news story published in the Columbus Dispatch on September 2nd, late payments on car loans are at a ten year high, and repossessions involving subprime loans were up fifteen percent in 2006.

Subprime rates don’t only apply to loans for large purchases like houses or cars; some credit cards also have a subprime rate and are issued to consumers with poor credit records. According to wikipedia.org, numerous such credit cards became available in 2007, some with rates as high as twenty-four percent. The credit card industry’s enthusiasm for offering these rates appears to be undiminished by problems involving car and home loans of this type; according to iht.com (International Herald Tribune, Sept. 5th), subprime card offers increased by over forty percent in the first six months of 2007. Even with lower-rate cards, small print on most applications reveals that the interest rate will be dramatically raised after 1-2 late payments.

Due to the severe financial problems which have been brought about by loans with a subprime rate, they are likely to have a diminished role in future real estate lending, at least in the United States. However, lending of this type for smaller purchases (especially through credit cards) will probably remain largely unchanged.