## Question of the Day: What's the average interest rate on a car loan for someone with bad credit?

|
Jan 23, 2018
|
Credit Scores, Question of the Day, Current Events, Research

Question:

• Give one example of an action a borrower can take to have “bad credit?”
• How does the interest rate affect the monthly payment on a car loan? Explain.
• Assume a borrower with bad credit took out a \$20,000 car loan. Estimate what the total cost of the loan would be for a 60 month loan.

Here's the ready-to-go slides for this Question of the Day that you can use in your classroom.

Behind the numbers (USA Today):

Subprime buyers got substantially better rates even a year ago. The average subprime [Poor Credit] rate of 5.91% last year has jumped to 16.84% today, Smoke says. For a 60-month loan of \$20,000, that means a monthly payment hike of more than \$100, to \$495. [Editor's note: Have your students fact check that 5.91% rate as it seems inconceivable that rates would have jumped almost 10% in a year; guessing that was a typo in the USA Today article]

-------------

Want to extend this activity so students can calculate for themselves the cost of bad credit? Check out this NGPF Activity, Calculate: Impact of Credit Score on Loans