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•Up-front costs: Up-front costs may include the first month's payment, a refundable security deposit, a capitalized cost reduction (like a down payment), taxes, registration and other fees, and other charges. •Monthly payments: Monthly lease payments are usually lower than monthly loan payments because we are paying only for the vehicle's depreciation during the lease term, plus rent charges (like interest), taxes, and fees. The Key Entities in an Auto Loan process are: •Borrower: is the one who needs to use/own the automobile and approaches a dealer/lender for getting financing for the same •Dealer: Typically a franchisee of the manufacturer, involved in selling and delivery of the vehicle to the buyer •Lender: Provides capital to the borrower for buying the vehicle. This can be captive financiers, the banks, Credit unions and auto finance companies. •Credit bureau: Tracks and maintains credit history of borrowers and forward it to lenders during new application processing. This is used for deciding whether the loan should be provided to a customer or not. •Appraiser: Assesses and establishes the fair market value of collateral offered as underlying security to the credit asked for. •Insurer: The Insurance company insures the vehicle owner against specific liabilities caused to and from the vehicle during the course of its use upon the payment of a premium and signing of a contract •Loan servicer: is the one who provides various services during the life cycle of a loan starting from loan origination to loan closure. •Collection agencies: These are typically third party agencies that assist auto lenders with chronic delinquent accounts. •Repossession agencies: These are third party agencies which assist auto lenders with repossession of vehicles.
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76 Cognizant ConfidentialFoundation Course in Banking and Capital Markets•Valuation agencies: Black book and ALG help auto lenders with valuation of vehicles Auto loan process The Auto Finance Loan process can be divided into Loan origination, Servicing, and Secondary marketing. Loan Origination is the process by which a borrower applies for a new loan, and a lender processes that application. Origination generally includes all the steps from taking a loan application through disbursal of funds (or declining the application). Credit decision is the major milestone during loan origination process. This would depend on many factors like the credit rating of the customer provided by the credit bureaus, capacity of the customer to repay back the loan amount, the nature of the vehicle requested to be financed, and the amount of down-payment offered. The credit decision can also be done for a very good application meeting all credit policies and guidelines by the loan processing system automatically thereby reducing the time required for manual processing by the Analysts. Or it would reject the application based on these factors, the rejected application would be sent to Credit Analyst for further processing.
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