Which statement defines an auto loan?

An auto loan is specifically designed for the purchase of vehicles, and it is a type of secured personal loan. When a borrower takes out an auto loan, they receive funds to buy a vehicle, and the loan is backed by the car itself. This means that the vehicle serves as collateral, which typically allows lenders to offer more favorable interest rates and terms compared to unsecured loans. If the borrower fails to make payments, the lender has the right to repossess the vehicle. This structure of the auto loan helps to mitigate the risk for the lender, as they have an asset to claim in the event of default.

In contrast, other options mention different types of loans or financing that are not related to vehicle purchases, such as those for residential properties, without collateral, or equipment for businesses. These distinctions highlight the unique purpose and structure of an auto loan within the broader category of personal finance.