Final answer:
Loans with quick approval and low down payments, such as subprime loans, are often associated with higher interest rates and risky terms due to the increased risk to lenders. Securitization can encourage banks to issue more of these loans, which can be costlier for borrowers in the long run.
Step-by-step explanation:
A loan that is approved quickly and has a low down payment usually has a higher interest rate or may have less favorable terms due to the increased risk to the lender. Subprime loans, for example, may have low or zero down-payment requirements, minimal income verification, and initially low payments that escalate after the first few years.
These factors make them riskier investments for lenders, leading to higher costs for borrowers to compensate for the added risk. Securitization is a process that allows a local bank to not require significant extra funds to make a loan since the loan is intended to be sold shortly after origination and pooled into a financial security.
However, it also means that banks may be less diligent in vetting borrowers who receive what's known as 'subprime loans.' These loans might include characteristics of minimal down payments and little scrutiny of the borrower's ability to repay.
Eventually, these loans can lead to higher payments for borrowers, and they have been labeled as NINJA loans when made without verifying the borrower's income, employment, or assets.