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Teaching material > car loan vs car rental 2
car loan vs car rental 2
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julianbr
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hi Carinita, in order to take out a loan, a customer must meet certain requirements imposed by the lending company. For example, the person applying for a loan must normally have a regular income and own tangible assets (house, car etc.) in order to guarantee they can repay the loan. For the best deals, the customer must also have a good credit history.
The exact requirements imposed by the lending company depend on the customers � classification, with the higher risk customers being assigned to a lower classification and so needing to meet more stringent requisites. And being asked to pay more for the loan.
imagine you are a lending company. Your livelihood depends on you lending cash to people. lending cash is good as it makes you rich. one particular morning you receive two applications for a credit loan. like all good credit lenders, you check out their credit history. The first person has a regular job and has never defaulted on a loan payment in his life, whereas the second regularly changes jobs and has missed a previous payment with another company. clearly you don �t want to treat these two applications the same. in theory you could accept the application from the first and turn the second down. however, you want to do business as it makes you rich. so you assign your applications to different groups in a credit tier
rather than accepting only good applications, you could assign the second application to a lower credit group than the first. And in doing so safeguard the repayments. whereas you might just go ahead and lend application one his money, you �d make application two secure the loan against his house or other tangible asset that you can sell if he defaults on repayments. And you �d also charge him more money in interest and repayments because he can �t go to another lending company like the first guy can as he �d surely be turned down.
so a credit tier is the layer of groups in which applicants are placed depending on how sure the lending company is of getting its money back from that particular client. The higher groups get the best deals whereas the lower ones pay more for their money and need more security in the form of buildings or goods that can be sold if they dont repay.
in the article you quoted, the dealerships place clients they feel might not repay the loan into a lower credit rated group, thereby demanding these clients pay more money in higher interest rates.
hope this helps. regards, Julian.
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13 Dec 2009
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zoemorosini
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Juliianbr:
Even though it wasn �t my question, what a wonderful explanation! Thanks for taking the time. |
13 Dec 2009
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carinita
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That �s the sort of answer I was expecting! That �s the way I talk about business!  Where did you get all the information? Have you been to the US, Julian?
Thanks a lot! |
13 Dec 2009
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It �s also in the article 
