Economics Activity that teaches the 3-Cs of Credit and puts a fake loan application in the students hands that they get to approve or deny based on his specific information. It then asks students to reflect on what they need to do to make sure that they are approved in the future if they ever need a loan.
Joe has requested a loan for a newer model car for $25,000.
You are the Loan Officer at the bank. Based on his information from his application, you have to decide whether to give Joe this loan or not. Categorize his information based on whether it speaks to his capacity (ability to repay), character (willingness to repay) or collateral (assets that could be seized if he doesn't repay).
FICO Score: 620
Annual Household Income: $40,000
Market Value of Other Real Assets: $500 (Old furniture and appliances)
Education: Occupational License as an electrician
Short-term Financial Assets: $5000 in a money market deposit account
Monthly Debt Payments as a % of Monthly income: 20%
Length of Credit History: 1 Year using a store credit card
Equity in Home: $20,000
(If he sold his house today, he would get this amount in profit. This is an asset.)
Long-Term Financial Assets: $10,000 in U.S. Treasury Bonds
Criminal Record: One major misdemeanor
Years working for current employer: 5 years
Years living at current address: 8 Years
Capacity
Character
Collateral
What factors support APPROVING Joe's loan request?
What factors support DENYING Joe's loan request?
Woudld you approve or deny Joe's Loan request?
Explain your decision to approve or deny Joe's loan request in at least 3 complete sentences. Cite specific evidence about his capacity, character and/or collateral.
Now that you had someone's loan request in your hands, what will you take from this activity and apply to your own life and personal finance decisions? How will you make sure you don't get denied in the future?
