A car loan is money you borrow from a bank to buy a car. In most countries, it is practiced to purchase both new and used cars on credit.
The terms of lending may vary depending on the country of purchase of the car, but there are common features in the process of obtaining a loan for a car. So, for example, wherever you take out a car loan, you will have to deposit your new car as collateral.
History of car loans
I wonder how much the number of cars on our planet will decrease if we remove all the cars bought on credit at once? According to statistics, when buying every third car in the world, a bank loan was used. It turns out that more than four hundred million cars traveling around our planet were purchased on credit.
There is nothing surprising in this, because if we compare the income levels of people and the cost of a car in any country in the world, we will see that it will take a very, very long time to save up for a brand new car. At the same time, everyone wants to sit behind the wheel of a car now and immediately. At such moments, a loan is a real salvation.
The emergence of the auto market was not as fast as it might seem to us. Its history begins with the advent of the first patented car - the three-wheeled car of Carl Benz (Carl Benz), created by him in 1885. After 5 years, Gottlieb Daimler and Wilhelm Maybach announced the development of their car. Their car was called Daimler. But then there was no need to talk about the mass production of cars. All this led to the fact that only very wealthy people could afford to buy a car.
The ingenious designer and entrepreneur Henry Ford managed to make the car more accessible and popular among the masses. He created his legendary Ford Model T, thanks to which Ford managed to capture 50% of the US automobile market from 1908 to 1923.
Nevertheless, buying a car remained the prerogative of the wealthy stratum of society. The minimum cost of a car (Henry Ford managed to reduce it to $ 850) remained prohibitively expensive for the middle class.
Probably, buying a car would still be a dream for many today, if it were not for the mechanism of bank lending to automotive equipment that came to the rescue. In Europe and the USA, the procedure for issuing a car loan was developed already in the second half of the 20th century; in developing countries, this tool took root only at the beginning of the 21st century. The thing is that the development of the car loan market was possible only if there was a reliable banking system and the emergence of a credit culture among the country's population.
Initially, the idea of issuing a loan for a car loan was that the bank gave the client money to buy a car, while requiring the recipient of the money to provide collateral. The best collateral in this situation turned out to be nothing more than the car itself bought by the client. For those who consider the above condition to be bondage, let us recall that in ancient Assyria a person who did not repay a debt could be taken into slavery, so securing a loan with a newly purchased car is quite a civilized and humane tool for modern creditors.
If you look at this situation from the other side, then without the appearance of lending tools, many car owners would never have bought their cherished four-wheeled friend. Here we are seeing a situation similar to mortgage lending, the development of which has helped many families on our planet to purchase their own home.
Another question is the availability of car loans in different countries. For example, the size of the interest rate in the United States will depend on the condition of the car taken on credit: for a new car, this value will start from 2.13%, for a used car - from 2.28%. Despite such low rates by the standards of other countries, most Americans prefer to take a car on a long-term lease - leasing. For comparison, in Turkey and India, car loan rates on average range from 10 to 12% per annum.
But, whatever the interest rate on car loans, it generally reflects the financial situation in the country and is aimed at ensuring that the automotive market develops, including through the purchase of cars on credit.
Despite all the efforts of the world community to limit harmful emissions into the atmosphere from internal combustion engines, the automotive market continues to grow, creating conditions for the development of car lending tools. As a result, we get a process that is attractive to all its participants: factories produce cars, people acquire comfortable vehicles, banks receive huge profits from overpayments on loans. But, most importantly, everyone is happy with the result!
