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What Exactly are Auto Loans and How do They Work?

Auto loans basically consist of the amount that you may borrow in order to finance a vehicle that you are looking to purchase. Most people do not have ready cash to pay the full amount then and there and highly priced items like cars, trucks, vans, etc. This is where auto loans can be useful. They help you overcome the burden of becoming cash strapped after payment of a large sum of money at one go. However, not all kinds of loans qualify as Auto loans.

Auto loans are those loans that are secured by mortgaging the vehicle itself. This means that in an event of non-repayment of the borrowed amount by the vehicle owner, the lender has full rights to recover this money by possessing the vehicle and doing whatever, he wants with it. This is a kind of collateral security to the loan taken.

Auto loans generally tend to be short term loans that do not exceed three years in most cases. They have higher interest rates than most other sources of raising funds but are possibly the quickest and easiest ways to finance your vehicle. Most banks, financial institutions do not reject the loan application as there is a ready-made security in the form of the car you are buying. However, they may check and ensure that you have a stable income source and have the ability to pay the periodic installments against the loan amount. You may also be required to get the vehicle fully insured. Another pre-requisite is that the person who is applying for the auto loan must be the undisputed owner of the vehicle.

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