Personal Finance Credit Activity: Would you give Joe 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).

Classify Joe's information from his application into the correct category.

1

FICO Score: 620

1

Annual Household Income: $40,000

1

Market Value of Other Real Assets: $500 (Old furniture and appliances)

1

Education: Occupational License as an electrician

1

Short-term Financial Assets: $5000 in a money market deposit account

1

Monthly Debt Payments as a % of Monthly income: 20%

1

Length of Credit History: 1 Year using a store credit card

1

Equity in Home: $20,000
(If he sold his house today, he would get this amount in profit. This is an asset.)

1

Long-Term Financial Assets: $10,000 in U.S. Treasury Bonds

1

Criminal Record: One major misdemeanor

1

Years working for current employer: 5 years

1

Years living at current address: 8 Years

In each of the categories, rate Joe's risk level.

Given Joe's characteristics from his loan application, evaluate how likely he is to repay his loan in each of the 3 categories. 

1

Capacity

1

Character

1

Collateral

Would you give Joe a $25,000 loan for a newer model car?

Justify your decision using complete sentences.

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What factors support APPROVING Joe's loan request?

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What factors support DENYING Joe's loan request?

1

Woudld you approve or deny Joe's Loan request?

1

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.

Making sure you "look good on paper."

1

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?

Personal Finance Credit Activity: Would you give Joe a Loan?

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?

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?

Equity in Home: $20,000
(If he sold his house today, he would get this amount in profit. This is an asset.)

Equity in Home: $20,000
(If he sold his house today, he would get this amount in profit. This is an asset.)