Should Car Loans Differ By Make?


A recent study points to high loan default rates on domestic makes as a reason for changing loan rates depending on the logo on the grille. The study comes from Penn State’s College of Business, and it studied the performance of nearly 7,000 car loans between 1998 and 2003. The results were pretty clear. Those getting a loan for a Japanese car were 56% less likely to default on the loan than those buying domestics. Those buying European nameplates were 50% less likely to default than their domestic counterparts.

These results led researchers to suggest domestic automakers raise their prices to compensate for the rate of loan defaults. Somehow we don’t think that’s going to happen. Besides this new twist on loan dynamics, the study found that tried and true measures like high credit scores and high salaries lead to fewer defaults on loans. Other tidbits from the study can be found below.

Study: Auto Loans For American-Made Cars More Likely To Default (SMEAL College of Business Via Autotopia)

Other findings in the research include:

  • Loans for European and Japanese cars had a lower default rate (2.9 percent) than loans for American cars (4.7 percent).
  • Loans for Saturns had default hazards 22 times higher than the default hazard of Toyotas.
  • Loans for Mazdas were six times more likely to default than loans for Toyotas.
  • Purchasers of American cars were older (45 years versus 41 and 38 for purchasers of European and Japanese cars, respectively).
  • Purchasers of American cars borrowed more relative to the purchase price (80 percent versus 65 percent and 76 percent for purchasers of European and Japanese cars, respectively).
  • European car purchasers had higher monthly incomes on average ($4,625) than either American ($4,024) or Japanese ($4,114) car purchasers.
By David Thomas | August 13, 2007 | Comments (11)



Perhaps it's just that smarter consumers and managers of their finances tend to buy more reliable vehicles, such as Toyotas and Hondas. Or people with poor credit are lured in by crazy incentives, such as 0% financing to push undesired products.


This study makes complete sense as incentives cloud the issue of long term durability/reliability. When you don't build a quality auto, people are more likely to walk away when the 'you know what' hits the fan. Thankfully I have a high income where I could absorb the loss on my '06 JGC when I dumped it for a Honda Passport. I will never buy a car or truck from the Detroit makers.


From my experience in the car biz- a lot of the banks that the bigger american dealerships do business with are less strict when it comes to credit. I sold nissans and when we couldn't get someone done, we'd send them to one of three volume dealerships in town (Houston), one chevy, one ford and the other toyota. Usually one of them could get the person financed.
Also LM, the 0% still requires a person to have really good credit.


Yes, but it's still a lure to get someone in the door. And if they don't qualify, they get the big rebate.


This could, however, be used by third party lenders as an excuse to charge a larger interest rate, or more likely add a hidden fee. (It's the "domestic default" fee!) Generally any lame excuse to do so will work.


Alot people forget thats how Mitsu got screwed up. It let to many kids get credit to sale cars and had a huge number of defaults. Lots of people are upside down on loans eventually there will be a time when it all comes home. Remeber this domestics usually sale to people of lower incomes and we all know the pressure everyday Americans are under. Traditional foreign automakers haven't offered deals on loans but they will get there. But in the end the article mention all this sociological information is just bs and true measure trumph. So if true measure trumph who buying a new car that shouldn't be.


Was the study make nationwide or only in small geographical region? Urban or suburban? Employees or self-employed? Race? Income? Number of member in the household? happens the same in Oregon and in Iowa? What models have more defaults, the Camry or de Corolla?

I know that professor have to publish, but they got their 15 minutes and now we can talk about serious matters.

Anybody can get financed, it doesn't matter the car, the dealers only want to sell and get the commission. For poor scores they will get higher rates.

By the way, only people with really good credit can get 0 financing.

This is the reason I get my financing through credit union, so I don't have to put up with the dealeship bs.


I agree with Dodgefan, how come Mitsubishi's problems from a few years ago aren't referenced? Or Hyundai?

Now the money lending troubles are causing a melt down in the sub-prime housing market.

So it's not really a domestic automakers story at all, more like "poor folks might be poor becuase they don't pay their bills and over spend"?

Nah not sexy enough. Let's jut blame Detroit.



One of out friends got a TrailBlazer with 0 interest. She has perfect credit. She had the choice of a rebate with interest or sticker price with 0 interest, so she decided 0 because she is going to pay less.

I don't think even the big 3, Toyota, Nissan and Honda make a lot of money SELLING cars. The big business is financing.

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