What characterizes subprime lending?

Subprime lending is characterized by providing loans to borrowers who have lower credit ratings, which indicates a higher risk for lenders. Since these borrowers may not qualify for traditional prime loans—often due to their past credit issues, lower income levels, or other financial difficulties—they are offered loans specifically designed for them. These loans typically come with higher interest rates to compensate for the increased risk that lenders face by lending to borrowers with less favorable credit histories. This is why the option stating that subprime loans are provided to borrowers with lower credit ratings at higher interest rates accurately captures the essence of subprime lending practices.

The other options do not align with the definition of subprime lending. Offering loans to all qualified borrowers at low interest does not reflect the selective nature of subprime lending, and restricting loans to first-time buyers is not a characteristic of subprime lending, as these loans can be available to anyone with a lower credit rating. Lastly, loans requiring a government guarantee pertain more to specific loan types, such as FHA or VA loans, rather than being a defining feature of subprime lending itself.