Car loans and repossession

General Motors starts its own finance company so more people can buy cars on credit.

In 1919 General Motors created GMAC to lend to car buyers and dealers. By the late 1920s most new cars in the US were bought on installment credit.

Because the car secures the loan, a lender can repossess it when payments stop, sell it and charge the borrower for the shortfall and costs.

💡 Why it made sense then

Cars cost far more than most people could pay at once, and lending against the car itself made the risk acceptable.

Cars, boats and planes can be bought on a 35-day loan. Miss two payments and the car is repossessed with a fine of 10% of its price.

🏦 Collateral
Collateral is an asset a borrower pledges to a lender, which the lender can take or sell if the loan isn't repaid.
🏦 Interest rate
An interest rate is the price of borrowing money, stated as a percentage of the loan per year. For savers it is the reward for lending their money to a bank.

Practise with $10,000 in play money

Free. No real money involved.