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.