Loans Auto Loans 2

Question 1

What is a 'captive auto lender'?

Accepted Answer

A financing company owned by or exclusively partnered with an auto manufacturer

Answer

A captive lender, such as Toyota Financial Services or Ford Motor Credit, is directly affiliated with an auto manufacturer and primarily finances that brand's vehicles.

Question 2

Being 'upside down' on an auto loan means:

Accepted Answer

The borrower owes more than the car is currently worth

Answer

Being upside down (or underwater) means the outstanding loan balance exceeds the vehicle's current market value, creating negative equity.

Question 3

Which of the following documents does a lender place on a vehicle to secure an auto loan?

Accepted Answer

Lien on the vehicle title

Answer

The lender places a lien on the vehicle's title, giving them a legal claim to the car until the loan is fully repaid.

Question 4

What is the typical maximum auto loan term offered by most US lenders today?

Accepted Answer

84 months

Answer

Many US lenders now offer auto loan terms up to 84 months (7 years), though longer terms increase total interest paid and the risk of being upside down.

Question 5

How does depreciation impact auto loan risk for a lender?

Accepted Answer

Rapid depreciation increases the chance a borrower will be upside down, raising default risk

Answer

As a vehicle depreciates quickly, the loan balance can exceed the car's value, meaning the lender may not recover the full loan amount if the borrower defaults.

Loans Practice Test

Loans Practice Test

Loans Auto Loans 2