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Harold and Elaina are being considered for a car loan. The banker looks at their creditworthiness because he wants to be sure the bank will get the loan payments on time and that the loan will be paid back in full. The table below summarizes the information that was on their applications.

\begin{tabular}{|l|c|c|}
\hline \multicolumn{2}{|c|}{ Application Information } \\
\hline \multicolumn{1}{|c|}{ Questions } & Harold & Elaina \\
\hline How many years have you had your job? & 3 & 7 \\
\hline What is your monthly salary? & \[tex]$2,600 & \$[/tex]2,250 \\
\hline How many credit cards do you have? & 2 & 6 \\
\hline How much debt do you have? & \[tex]$3,000 & \$[/tex]12,000 \\
\hline How many times were you late with payments on credit cards in the past year? & 1 & 8 \\
\hline
\end{tabular}

Who will get the better loan rate from the banker and why?

A. Elaina because she has more credit cards available to her.
B. Elaina because she has had her job longer, which makes her look more stable.



Answer :

GinnyAnswer
Let's examine the critical factors that determine creditworthiness, which a banker would consider when offering a loan:

1. Years on the Job: A higher number of years in a job indicates job stability. Banks favor borrowers who have held their job longer since it suggests a steady income and reliability.
- Harold: 3 years
- Elaina: 7 years

2. Monthly Salary: A higher salary can be beneficial as it indicates a higher capacity to repay the loan.
- Harold: [tex]$2,600 - Elaina: $[/tex]2,250

3. Number of Credit Cards: It could reflect both the ability to manage multiple accounts responsibly and potential overextension.
- Harold: 2 credit cards
- Elaina: 6 credit cards

4. Debt Amount: Higher existing debt may indicate a more significant financial obligation that the borrower already has.
- Harold: [tex]$3,000 - Elaina: $[/tex]12,000

5. Late Payments: A lower number of late payments indicates better financial discipline and reliability.
- Harold: 1 late payment
- Elaina: 8 late payments

Based on these factors:
- Years on the Job: Elaina has been in her current job longer (7 years compared to Harold's 3 years). This fact significantly favors Elaina as it shows job stability and a consistent income.
- Monthly Salary: Harold has a higher monthly salary ([tex]$2,600) than Elaina ($[/tex]2,250), which might typically favor Harold for the loan.
- Number of Credit Cards: Elaina has more credit cards (6 compared to Harold's 2). This might negatively impact her if it suggests overextension, though it could also show a higher credit capacity if she manages them well.
- Debt Amount: Elaina has significantly more debt ([tex]$12,000) compared to Harold ($[/tex]3,000). This is a point that could weigh negatively against Elaina.
- Late Payments: Harold has a better track record of timely payments (1 late payment compared to Elaina’s 8). This is crucial because it directly affects the creditworthiness indicator.

Putting it all together, while Harold has a higher salary, less debt, and fewer late payments, the fact that Elaina has held her job for longer makes her look more stable to the banker. Long-term employment shows a stable and trustworthy borrower. Thus, despite Harold having some favorable points, Elaina’s longer job tenure gives her an edge in appearing more stable.

Conclusion:
Elaina will get the better loan rate from the banker because she has had her job longer, which makes her look more stable.

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