The term auto loan refers to a category of secured loans designed specifically for vehicle purchases. Vehicle purchased using auto loans act as collateral against the loan.
Typically, auto loan amortization schedules are designed so that loan repayments match the devaluation of the car which acts as collateral. This insures that the car continues to provide sufficient collateral against the loan.
Auto loans carry a significant amount of risk because if the car is damaged (in an accident or by a natural hazard, for example), its value may no longer provide sufficient collateral to continue securing the loan. This may happen when above-average wear and tear leads to accelerated devaluation. To protect themselves from these risks, many auto loan providers require borrowers to take out payment protection insurance or to insure the car with collision car insurance and comprehensive car insurance.
This type of loan is not common in Switzerland. Instead, standard personal loans are used to finance the purchase of vehicles.
More on this topic:
Swiss personal loan comparison
