Consider the following statements 1 Sub Prime loans are loans given to borrowers at rates of interes...........

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Consider the following statements:

1. Sub-Prime loans are loans given to borrowers at rates of interest lower than PLR.

2. They are given to less credit-worthy borrows

Which of the above statements is/are correct?

Only 1

Only 2

Both 1 and 2

Neither 1 nor 2

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Explanation:

Both statements are incorrect. A subprime loan is a type of loan offered at a rate above prime to individuals who do not qualify for prime rate loans. Quite often, subprime borrowers are turned away from traditional lenders because of their low credit ratings or other factors that suggest they have a reasonable chance of defaulting on the debt repayment.
Subprime loans tend to have a higher interest rate than the prime rate offered on conventional loans. On large term loans such as mortgages, the additional percentage points of interest often translate to tens of thousands of dollars' worth of additional interest payments over the life of the loan.