According to Wikipedia:

Fannie Mae defines  "prime" borrowers on conforming mortgage loans. Fannie Maie will buy or securitize into the credit market these prime loans. "Their standard provides a good comparison between those who are eligible for prime vs. subprime loans. Eligible borrowers for prime loans have a credit score above 620 (credit scores are between 350 and 850 with a median in the U.S. of 678 and a mean of 723), a debt-to-income ratio (DTI) no greater than 75% (meaning that no more than 55% of net income pays for housing and other debt), and a combined loan to value ratio of 90%, meaning that the borrower is paying a 10% downpayment."

How do lenders off set the risks of dealing with subprime customers? By charging higher interest rates and fees. These fees range from higher late fees to higher over the limit fees, yearly fees and fees to sign the loan.

Credit cards are a similar drill. These fees compound, resulting in nice returns for lenders.

Why would a smart person sign up for a subprime loan? Because they can't get a prime loan. It's the same reason as why some men date and marry ugly women — usually it's because they can't land a hot chick.

Subprime loans are sometimes praised as credit repair. If you pay off your debt, you'll show yourself to be a responsible borrower and you'll become eligible for prime loans.

What'll keep a bloke from getting a prime loan?

• Two or more loan payments paid past 30 days due in the last 12 months, or one or more loan payments paid past 90 days due the last 36 months;
• Judgment, foreclosure, repossession, or non-payment of a loan in the past;
• Bankruptcy in the last 7 years;
• Relatively high default probability as evidenced by, for example, a credit score (FICO) of less than 620 (depending on the product/collateral), or other bureau or proprietary scores with an equivalent default probability likelihood.
• Accuracy of the credit line data obtained by the underwriter.

Wikipedia's entry says that subprime lending is also known as second chance lending, near-prime and B-paper. It means lending at a higher interest rate than the prime rate.

Only prime borrowers — those with the best credit scores — get the prime rate.

In America, subprime mortage lending means lending that does not meet Fannie Mae or Freddie Mac guidelines.

In 2006, the Wall Street Journal wrote that 61% of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans.^[1]

Subprime also refers to banknotes taken on real estate that won't sell on the primary market. These are often investment property loans.

The self-employed often take subprime loans.

Subprime loans are risky for both lenders and borrowers. Why? Because of the combination of high interest rates, less than stellar credit and the higher likelihood of bad financial developments for the subprime borrower.

Because of this added risk, subprime loans charge higher interest rates than A-paper loans due to the perceived increased risk.

Aside from mortgages, other subprime loans can be taken out for cars and credit cards and short-term "payday" loans.

Subprime lending has a lot of critics. They allege it is predatory. That it aims at borrowers who are too stupid to understand what they are signing.

Subprime loans often demand higher fees and often lead to defaults, seizures, strokes and foreclosure.

There have been charges of mortgage discrimination on the basis of race.^[2] Proponents of subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market.^[3]

Credit around the world has been reduced because of 2007's subprime meltdown in America. Millions of borrowers must pay higher rates because of it. Hundreds of thousands of borrowers have been forced to default or file for bankruptcy. Hundreds of subprime lenders or brokers have closed, some have filed for bankruptcy and several have been acquired.