What type of loan is designed for borrowers with poor credit or unstable income history?

A subprime loan is specifically designed for borrowers who may have poor credit ratings or an unstable income history. These loans are tailored to meet the needs of individuals who may not qualify for traditional financing options, which often have stricter credit requirements. Subprime loans may come with higher interest rates compared to prime loans, reflecting the increased risk lenders take when lending to borrowers with credit challenges.

In contrast, prime loans cater to borrowers with good credit scores, making them eligible for more favorable terms and lower interest rates. Conventional loans, typically aligned with prime borrowers, also require higher credit scores and stable income history. While FHA loans aim to assist first-time homebuyers and those with limited credit history, they are not specifically designed for borrowers with poor credit; they have their own guidelines and can still offer some leniency in credit evaluations, but they are not classified as subprime loans.