Report: Owners of American cars more likely to default on loans

Findings from a recent study could potentially change the way banks pick interest rates for new car loans. The study, run by Penn State's Smeal College of Business professor Brent Ambrose, found the probability of car owners defaulting on their loans was actually affected by the make of the model.

Looking at the outcomes of 6,996 car loans between January 1998 and March 2003, researchers found that owners of European and Japanese brands were 50% and 56% respectively less likely to default on the their loans compared with owners who bought American. Basically, the eggheads are saying that loans for American brands should have higher interest rates than foreign brands to compensate for the higher default risk. Saturn was one of the worst performers in the survey, with the average owner of a Saturn 22 times as likely to default on a loan as a Toyota owner.

The research has the potential to see lenders judge loan costs by the make and model of a car, just as insurers do when calculating premiums. The news is sure to be a blow to the already struggling Detroit 3, but, we suspect any changes to lending criteria are still some way off.

[Source: Smeal College of Business via Wired]