The Pros And Cons Of Subprime Loans

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Subprime loans can be harmful to the economy as it has been displayed in Countrywide’s financial struggles. Subprime loans can be classified as ethical acts provided by lending agencies. Loans such a subprime loans are considered ethical because they cater to more of a middle-class family. Also, subprime loans can be classified as unethical. Subprime loans which are hastily defaulted, and are sometimes outright fraud have taken over the housing and automobile industry (Coppola & Butters, 2017). More than fifty percent of loans distributed are classified as subprime loans. In today’s economy, subprime loans are sky-rocketing because more and more people are struggling financially. Subprime loans can be ethical because lenders can offer lower …show more content…

Subprime loans can cause extreme stress on borrowers because the interest rate is so much higher than the traditional loans which force borrowers to pay more. Naturally, when higher interest rates are offered, more money will be lost by the lender. Another reason why subprime loans are considered unethical is that it increases the number of delinquent loans. Delinquent loans are loans that the borrower has not paid back or are overdue on their payments. Naturally, when it comes to delinquent loans, lenders are forced to make rational decisions to benefit themselves (Gardner & Mills, 1989). The financial crisis played a significant role in why subprime loans are unethical. During the financial crisis, houses became too much of an expense because borrowers were obtaining less income. Therefore, the housing market crashed, and many people were left evicted. Banks began to foreclose on houses that people could simply not afford anymore (Ferrell, Fraedrick, & Ferrell, 2015). Other significant industries were also suffering because of this financial downfall. The automobile industry began to experience customers or borrows who could not pay their car note. In this result, the car became repossessed by banks, and the dealing auto sector was at an all-time

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