Why does it take a few hours to finance a $100k auto loan, but 30+ days to finance a $100k mortgage?
In: Economics
A couple of big factors are average costs of loan, time frame of loan and, credit worthiness of buyer, standardization of asset being borrowed against.
First off, vehicles are standardized. Even at $100k price point, a new BMW 7-series is a BMW 7-series with a known MSRP/value, doesn’t matter what city you buy it in, or state, etc. A house is basically a one-off asset, so an appraiser needs to determine the actual value of the property based on location, land, house size, age, etc. and compare it to other nearby recent sales to tell the bank its actual value.
Secondly, the amount of paperwork, requirements, are different because of average costs. The average new car is 30k. The average home sale is $300k, so that’s 10x the value associated, on average. Sure, there are times where each might cost about the same but the $100k car buyer is likely going to be in stellar financial shape while the $100k home buyer is probably not in great financial shape.
And lastly, there are aspects to the time length of the loan. A car loans usually 3-6 years, vs 30 for a home loan. Because of time frames, and again because homes are one-off assets, banks have lots of requirement to make mortgages as uniform as possible in order to sell them easily (mortgage backed securities). This requires more extensive verification of borrower in addition to the already mentioned appraisal.
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