Personal Finance Credit Activity: Would you give Joe a Loan?
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Last updated about 5 years ago
20 questions
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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).
Classify Joe's information from his application into the correct category.
Question 1
1.
Question 2
2.
Question 3
3.
Question 4
4.
Question 5
5.
Question 6
6.
Question 7
7.
Question 8
8.
Question 9
9.
Question 10
10.
Question 11
11.
Question 12
12.
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.
Question 13
13.
Question 14
14.
Question 15
15.
Would you give Joe a $25,000 loan for a newer model car?
Justify your decision using complete sentences.
Question 16
16.
What factors support APPROVING Joe's loan request?
Question 17
17.
What factors support DENYING Joe's loan request?
Question 18
18.
Question 19
19.
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."
Question 20
20.
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
Capacity
Character
Collateral
Annual Household Income: $40,000
Capacity
Character
Collateral
Market Value of Other Real Assets: $500 (Old furniture and appliances)
Capacity
Character
Collateral
Education: Occupational License as an electrician
Capacity
Character
Collateral
Short-term Financial Assets: $5000 in a money market deposit account
Capacity
Character
Collateral
Monthly Debt Payments as a % of Monthly income: 20%
Capacity
Character
Collateral
Length of Credit History: 1 Year using a store credit card
Capacity
Character
Collateral
Equity in Home: $20,000
(If he sold his house today, he would get this amount in profit. This is an asset.)
Capacity
Character
Collateral
Long-Term Financial Assets: $10,000 in U.S. Treasury Bonds
