If sticker prices shock you, just wait until you see the interest rates...

Answer:

Used cars - 18.55% [Subprime: 501 - 600 credit score]

New cars - 11.53% [Subprime: 501 - 600 credit score]

Question:

1. Give one example of an action that can cause a borrower to have “bad credit?"
2. How does the interest rate affect the monthly payment on a car loan? Explain.
3. 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. 
   • If you want to know the answer, here's an auto loan calculator. 

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

Behind the numbers (MarketWatch):

"For those with bad credit, average auto loan rates range from 11.53% to 21.32% on average for new and used vehicles. Subprime or bad credit is typically reflected in a FICO score of 579. If your credit score falls below this threshold, a lender may assume an inability to pay bills on time and can result in higher interest rates or a lack of loan eligibility."

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Go over the basics of credit scores with your students using the NGPF activity INTERACTIVE: FICO Credit Scores!

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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

About the Author

Mason Butts

After graduating from UCLA with a Master's in Education, Mason spent 5 years as a science educator in a South Los Angeles public high school. He is committed to supporting the holistic growth of all students and empowering them to live a life of relational, academic, and financial success. Now settled in the Bay Area, Mason enjoys facilitating professional developments and partnering with educators as they prepare students for a bright financial future. When Mason is not building curriculum or planning a training, he can be found cycling, trying new foods, and exploring the outdoors.