What is a Car

A car loan is a type of secured loan where borrowers can use their vehicle car as collateral. Borrowers who get car loans must allow a lender to place a lien on their car, and temporarily surrender the hard copy of their vehicle car, in exchange for a loan amount. When the loan is repaid, the lien is removed and the car is returned to its owner. If the borrower defaults on their payments then the lender is liable to repossess the vehicle and sell it to repay the borrowers’ outstanding debt.

These loans are typically short-term, and tend to carry higher interest rates than other sources of credit. Lenders typically do not check the credit history of borrowers for these loans and only consider the value and condition of the vehicle that is being used to secure it. Despite the secured nature of the loan, lenders argue that the comparatively high rates of interest that they charge are necessary. As evidence for this, they point to the increased risk of default on a type of loan that is used almost exclusively by borrowers who are already experiencing financial difficulties.

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