Conditional Loan

Meaning and Definition

A conditional loan, also known as a secured loan, is a type of loan that is granted to a borrower based on specific conditions or requirements. In the context of car finance, a conditional loan is typically secured against the vehicle being financed. The lender retains a legal interest or lien on the vehicle until the loan is fully repaid, providing them with collateral in case of default.

Why it is important to know

Understanding conditional loans is important when seeking car finance, as they outline the terms and conditions under which the loan is granted. Conditional loans may involve requirements such as providing a down payment, maintaining appropriate insurance coverage, or meeting certain credit criteria. Borrowers need to be aware of these conditions and fulfill their obligations to avoid defaulting on the loan.

Example in car finance

Suppose you decide to finance the purchase of a car through a conditional loan. The lender grants you the loan, but as a condition, they require you to provide a down payment of 20% of the vehicle's purchase price. Additionally, they stipulate that you must maintain comprehensive insurance coverage on the vehicle throughout the loan term. Failure to meet these conditions could result in a breach of the loan agreement and potential consequences, such as the lender repossessing the vehicle.