Which best describes a 'subprime loan'?

A subprime loan is primarily characterized as a loan offered to borrowers with lower credit ratings. This description captures the essential nature of subprime lending, which targets individuals who may not qualify for standard loans due to poor credit histories, demonstrating an elevated risk to lenders.

Subprime loans typically come with higher interest rates compared to prime loans as a way for lenders to compensate for the increased risk associated with lending to borrowers who have lower credit scores. This alignment of risk and interest rates is a fundamental principle of lending practices in the banking industry.

While some subprime loans can be secured, not all must be; thus, the classification of subprime loans does not hinge on whether they are secured or unsecured. Additionally, subprime lending is not limited to real estate or any specific type of purchase; it encompasses various loan types, making the option concerning exclusivity to real estate purchases inaccurate.

Overall, the defining characteristic of a subprime loan revolves around the creditworthiness of the borrower and the implications this has for the terms of the loan.