A car loan is a sum of money one borrows from the bank in order to purchase a car. It does not enable you to obtain money in cash but the bank pays the money to the person or company that owns the car. Instead, the borrower agrees to pay the loan with an interest rate added to it, in the form of monthly payments, until the amount is fully paid.
Car loans are almost guaranteed, this means that if the borrower fails to pay his payments, the car will be returned and sold to repay the loan debt.
Basic car loan requirements
- The loan amount is divided into two parts: the basic amount and the interest rate
- The basic amount is the car’s price.
- The interest rate refers to the total amount of the accumulated added amount over the loan’s period.
An interest rate is a basic rate charged on the borrowed amount of money.
The first payment is a down payment that the borrower pays when purchasing a car. It is usually determined upon a certain percentage of the total price.
It is not a must to get a car loan, sometimes the car is totally financed (100%), while sometimes and for some reasons the car is not totally financed.
Terms and conditions
This refers to all other articles of the car loan, including the duration of the loan mentioned usually as a number of months or years. It also includes the insurance and registration requirements, loan payoff and resell terms; maintenance requirements, conditions regarding theft or accident, conditions when failing to install payments, and other conditions. The borrower should read them carefully before signing on the loan.