Subprime

Wikipedia's definition of Subprime lending, also called B-Paper, near-prime, or second chance lending, is the pratice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history.

As a former loans officer of a bank in the Philippines, these are loans with high interest rate & borrowers have poor credit history, and that makes it risky. A subprime describes the borrower and not the interest of the loan. But because it is high risk, it is not an ideal loan.

The risk here is the ability of the borrower to meet the obligation to repay. Mostly, these borrowers becomes the victims as the mortgaged properties are foreclosed or put under litigation.

As it is not ideal, it is a poor quality loan as opposed to best loans, where the borrower is able to meet the obligation on time, no matter how bad the economy is.

Subprime loan is below par, deficient and sub standard.

The question is, if the borrower is categorized as subprime, why are banks and other financial institutions approved the loan?