Incentivizing Borrowers

I’m shopping for trucks and auto loans. Specifically, I’m looking for a 2004 Toyota Tacoma. I’m buying a 13 year old truck for multiple reasons. Firstly, after 2004, the body size of Toyota Tacomas got much larger – larger than I need and too large to park on Capitol Hill where I live. Secondly, buying a used vehicle is important to me from an environmental standpoint. I like knowing that if I’m going to be a car owner, at least I’m not going to increase the number of cars already in existence. By purchasing a used vehicle instead of a new one, I’m taking on less financial risk myself, while also reducing the environmental impact of new vehicle manufacturing.


Despite my effort to be both financially and environmentally responsible, the interest rate on my auto loan will be nearly double what it would be if I were to purchase a brand new car. I understand the rationale that older cars are more likely to have problems and thus, be worth less as collateral. Yes, banks exist like any business to make money. But they also function to help people make big purchases and work toward financial goals. By charging a higher interest rate for an older vehicle, banks are incentivising higher risk borrowers.

If the lending functions of a bank operated more like a micro-lender, the community and environmental benefit might be far greater. Micro lenders make smaller loans to borrowers who typically have very little credit history. These loans typically have much lower default rates while offering a sustainable step toward borrower goals.


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