The car is the collateral that secures the loan; just like homes, they can be repossessed. This process is actually the legal resolution to the problem; simply take back the asset in question.
Credit card rates are so much higher because there is usually nothing to take back; pretty much “unsecured”.
While I’ve never done it myself, I understood why people walked away from their homes in the 2007/2008 Depression; it was the legal means to get out of the arrangement - agreed upon by both parties in advance.
I take it you have never listened to Dave Ramsey. People get upside on auto loans more or less the minute they drive off the lot. The value of a used car is far less than a new car, regardless of down payment.
The problem with autos as collateral is that most of them are worth considerably less than the loan right after they leave the lot.
I’ll grant you that is the fault of the lender. The lender should not loan more money than the car’s value.
These long term loans for cars now mean that the car is depreciating considerably faster than the loan is being paid off.
Not even sure how this would work.
First, the bank takes the car and resells it at auction or dealership, etc. The difference of what is owed vs. what it was sold for is still a debt that the bank can collect against the person who took out the loan. They can garnish wages, bank accounts, sue, etc.
Secondly, how do they get a car loan again with a repo on their record? Bad credit.
Maybe bad credit loans out there charging 24% interest on a new loan?