Tuesday, August 19, 2008

Auto / Car Loans

An auto loan is a very common type of debt instrument, used by many individuals to purchase cars. In this arrangement, the money is used to purchase the car itself. The financial institution, however, is given security - a lien on the title to the car - until the loan is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the car and sell it, to recover sums owing to it. In this instance, a loan taken out to purchase a new or used car may be secured by the car. The duration of the loan period is considerably shorter - often corresponding to the useful life of the car. There are two types of car loans, direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.

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