Erik bought a car costing $25,000 using $2,000 of his own money as a down paymen
ID: 2432293 • Letter: E
Question
Erik bought a car costing $25,000 using $2,000 of his own money as a down payment and $23,000 of recourse debt. The car will be used solely for personal purposes. Which of the following is true?
a. If Erik fails to make payments on the car loan, the creditor can attempt to collect on the loan by going after Erik’s personal assets. b. Erik’s basis is $2,000, but it will be increased as he pays on the loan. c. If Erik fails to make payments on the car loan, the creditor can repossess the car, but it cannot go after Erik’s personal assets. d. Erik’s basis will be decreased by the depreciation he will take on the car.
Explanation / Answer
c. If Erik fails to make payments on the car loan, the creditor can repossess the car, but it cannot go after Erik’s personal assets. Correct option
As when the car is bought on loan it is collateral to the bank and bank can go after the collateral asset if the payments are not done.
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