Car Loans

The banking systems and other financial intermediaries such as savings and loans associations are the primary sources of loans. A loan is a type of debt that is usually financial or monetary in nature. Any loan can be anything such as a loan of the land or a loan of farming implements. The modern context of a loan is usually intended to mean monetary loans. Taking out a loan entails a cost which we call the interest on the money that was borrowed. Today, there are all types of loans such as housing loans (mortgage loans), car loans (chattel loans), consumer loans, etc. A loan may be secured (an asset is pledged to guarantee the repayment by the borrower or debtor) or it may be unsecured (termed as clean loans). Clean loans are generally considered as riskier as far as repayment prospects are concerned since the borrower has no compelling motive to pay back the loan unless he wants to preserve his good credit standing. Personal loans against an employee’s salary or wages are a clean loan. So are credit cards issued by most banks which is a type of consumer debt.

Housing loans are generally long-term loans lasting from 10-30 years while car loans are much shorter in duration. Car loans usually cover the useful life of a car which is normally 5 years.  Beyond that period, cars are already considered obsolete in terms of model year by manufacturer and treated as fully-depreciated assets in most accounting books. Those cars over 5 years old since purchase and then sold as second-hand cars can be said to be sold for their scrap or salvage value. The recent spike in gas prices has exposed the vulnerability of the car-making industry. People are now buying less brand new cars or buying second-hand cars. They also tend to buy smaller and less-gas guzzling cars in the process. Many car dealers are selling more second-hand cars than ever before while new cars often sit in manufacturer’s showrooms longer than usual. Many car makers also operate their own car financing institutions to give the car buyer an option in car financing other than the usual banks.