: what was the subprime mortgage crisis ?
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A “subprime loan” is a loan that has a higher interest rate because the person borrowing the money doesn’t have a good credit history and/or job. The bank assumes they have a higher risk of not repaying the loan, so they charge the higher interest. The crisis happens when so many people aren’t able to pay back the loans that the bank actually starts to go into debt. With a mortgage or car loan they can often get some money back from auctioning off the asset, but even then the bank might still be in the red. Eventually after enough bad loans, the bank’s investors will start losing money because those banks are losing money.
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