What are subprime loans characterized by?

Subprime loans are specifically designed for borrowers who have lower credit scores or limited credit history, which correlates to a higher risk of default. As a result of this perceived risk, lenders charge higher interest rates on subprime loans compared to prime loans, which are offered to borrowers with good credit profiles. The elevated interest rates serve as compensation for the increased risk that lenders face when extending credit to subprime borrowers. This characteristic of higher interest rates directly reflects the relationship between credit risk and the terms of the loan offered. Lower interest rates or loans for high credit score borrowers would not align with the definition of subprime loans, as those qualities pertain to more conventional, less risky lending practices.