Subprime lending, also called B-Paper, near-prime, or second chance lending, is a alludes to offering loans to borrowers who do not qualify for market interest rates because of spotty credit history.

Subprime lending is risky for both lenders and lendees due to the combination of high interest rates, poor credit history, and murky financial situations often associated with subprime applicants. Of course, the rate offered for subprime loans is higher than prime mortgage rates, recently the average spread has been as high as 350 basis points.

Subprime lending is not limited to housing, but rather involves a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others. Prime is the ideal, sub prime, would be a below prime, or less ideal debtor.

Subprime lending remains highly controversial. This is likely to increase as the subprime markets have fostered liquidity issues and market uncertainty.  Predatory lending practices have existed, especially before the housing bubble looked ready to pop.  This may have led to borrowers who could never meet the terms of their loans, thus leading to default, seizure of collateral, and foreclosure. Many were offered teaser rates on variable rate mortgages and have suffered as interest rates increased.  Many lenders did not  approve the debtor for the higher amount (above the teaser rates), as is considered good practice.

Proponents of the subprime lending maintain that the practice extends credit to people who would otherwise not have access to the credit market.

Paraphrased and edited from Wikipedia.