An auto loan contract is a legally binding agreement between a finance company or other banking institution and a person who wants to purchase a car through financing. The contact contains all details of the agreement, such as the terms of the loan. The terms of the loan include the cash value of the vehicle being financed, the amount of the car's value that is being financed, the time period the buyer has to pay the loan, the monthly payments required and the interest rate of the loan.
Auto loan contracts are typically written by finance companies to protect their interests. The contract may not provide complete protection for the buyer, but laws such as the Federal Truth in Lending Act can give additional protection. The Truth in Lending Act mandates that automobile finance companies fully disclose specific details about the loan to buyers, including the interest rate and the complete cost of the loan, which may change based on the length of the contract. While the law provides certain protections, the buyer stills needs to be aware of the details of a contract before signing.
When consumers co-sign an auto loan contract, they are agreeing to the same legally binding agreement as the primary signer on the contract. As such, they are subject to the same terms and conditions as the primary signer and may be treated the same as the primary signer in the event of a loan default. The Federal Credit Practices Rule mandates that finance companies disclose the details on what will happen if the primary signer misses payments.
No matter what the court of public opinion rules, there is no "cooling off period." However, there are some conditions under which an auto loan contract may be canceled. For example, state laws mandate that automobile dealers provide buyers with "implied warranties," which are guarantees that cars being sold have no serious mechanical problem for a specific amount of time, which can be set by the dealer. Dealers can avoid this by advertising a car for sale "as is."
In addition, some states protect buyers from being saddled with vehicles that must be repaired repeatedly, even if the factory warranty provides coverage. These laws are referred to as "lemon laws," and are designed to protect consumers from buying cars that spend too much time being repaired.
