A Primer On Subprime Lending

Subprime loans carry higher interest than is charged to most borrowers, who are in the "prime" category, but this is because subprime borrowers are more likely than others to default. Lenders charge rates and fees consistent with the risks. If banks, in particular, did not do this, regulators worried about their safety and soundness would crack down on them. There is a dark side to subprime lending, however: loans that have been labeled predatory. The term is applied most often to loans made to uninformed, low-income, elderly and minority borrowers who are pressured to sign new mortgages or refinance their current ones on onerous terms."

Thanks to Brookings Institution