Should MoneyBags make the loan?


In this lesson we review the financial statements of three consumers. Given the ratios you will decide if they should be given an auto loan.

Pictures retrieved February 17, 2006, from Currency


You are the banker. Use the details for three consumers to make or decline the loan.

The bank expects you to use good judgment. You may elect to make an exception; however, you would need to have the loan reviewed and approved by the lending supervisor (Your teacher).

The key ratios are the debt to income ratio. The banks policy requires that that the consumers total debt must not exceed 40% or 2 to 5 debt to income ratio.

Download a copy of the workbook with the spread sheet for the three borrowers.


Credit Quality

As we learned in the lesson on credit scores the 35% of the borrowers score is related to credit quality. If the consumer has poor credit they receive fewer points.

Debt Ratio

Calculate the debt to income ratio for each borrower. The debt to income ratio must be 1:2. Total debt includes all expenses plus taxes.

Income per person

Calculate the debt per person. What is the ratio of family members to Net Income? Bank policy requires at least 300 per person with a total income to person ratio of 4 to 1.

Consumer 1

This person makes a very good salary. There are 4 people in the family. There credit report show all payments made on time.

They want your bank to finance the purchase of a new Honda Accord.

Consumer 2

Consumer 2 has been an accountant for 3 years. There are two people in the family. The credit report show a student loan, a house loan, and several late payments on a credit card. All payments are now current.

Consumer 2 would like the bank to finance the purchase of a used Nissan Sentra.

Consumer 3

A college graduate is starting their first job as a teacher. They have a current student loan. They are single and live with a roommate. They rent an apartment for $1000.

Our college graduate is asking the bank to finance a used lime green VW Bug.

Submit your recommendation

Use the Excel workbook to calculate the ratios. Analyze the scenarios, and submit a Word document containing your approval or recommendation to the lending supervisor (Your teacher).

Done Early?

If you are done early complete a report on how buying a house or car financing works?  If you did the bonus assignment in the last lesson, then choose a different topic from the one that you selected in the last lesson.

The report will be 1 page double spaced in 12 point Arial font.

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Last modified: 5/30/2012