The process of getting a loan to buy a new car is complicated, especially when you deal with representatives from different companies including the automaker, the car dealership and one or more banks. Whatever the terms of your loan and purchase are, you'll need to continue making payments according to your purchase agreement even if one or more of these companies closes.
Your Auto Loan
Once you sign a loan agreement to take possession of your new car, your loan becomes a valuable commodity. The dealer receives the full purchase amount from your lender, whom you must pay in monthly installments according to the terms you agree to. The lender takes on the risk that you won't be able to pay but also reserves the right to repossess your vehicle to recover some of its cost. The lender may sell your loan, often packaged with other auto loans into a financial instrument known as a debt security, to an investor who is willing to pay cash up front and wait to make a profit by collecting the interest you pay.
Bank Failure
Most auto lenders are commercial banks, which means they are exposed to risk through many types of loans that they issue. If the bank that owns your loan fails, it does not release you from your obligation to pay off the balance of your car. Instead, the bank will likely sell your loan to another bank, which will continue to collect your payments. Your loan is an asset, which means the bank that owns it can sell it to raise cash or use it as collateral to borrow money to stay in business.
Dealership Closures
If the dealership where you buy your car closes, it will do nothing to affect your loan. Dealers don't make loans directly to customers, even if the salesperson who shows you the car and negotiates a price also handles the loan paperwork. Instead, dealers work with banks through special arrangements. The company listed on the loan statements you receive is the owner of your loan, although the dealer may continue to contact you regarding your satisfaction and service or warranties for your vehicle.
Automaker Bankruptcy
Automakers are even further removed from the auto loan process. They work with dealers through franchise agreements, selling their vehicles at wholesale prices and allowing dealers to handle the final transactions. If an automaker closes or goes bankrupt, its customers continue paying off their loans. When automakers offer financing through affiliated lending programs, these programs are actually separate entities that may not be affected by the bankruptcy. In other cases, the automaker-affiliated lender will sell your loan to another bank, which will change who receives your payments but not how much, or for how long, you need to pay.
0 comments:
Post a Comment