What term describes loans offered with less favorable terms to borrowers with lower credit scores?

Loans offered with less favorable terms to borrowers with lower credit scores are referred to as sub-prime loans. Borrowers with lower credit scores generally represent a higher risk to lenders because their credit history indicates a greater likelihood of defaulting on repayment. As a result, lenders charge higher interest rates and impose stricter terms on these loans to mitigate their risk.

Sub-prime loans are designed to cater to these individuals who may not qualify for traditional loans due to their creditworthiness. The terms of sub-prime loans often include higher fees and interest rates, which reflect the increased risk to the lender. This approach enables some borrowers access to financing that they might otherwise be denied due to their lower credit scores.

In contrast, prime loans are offered to more creditworthy borrowers with lower interest rates and favorable terms. Consolidation loans are loans that combine multiple debts into a single loan, typically to reduce monthly payments. Equity loans refer to loans secured against the equity in a property, often used for home improvements or to access funds without selling the home. Each of these terms serves a different purpose in the lending landscape, further distinguishing sub-prime loans as uniquely suited for borrowers with lower credit ratings.