Many people think that car loan is the only option to finance a new car. No, you can also take personal loan to finance a car. But, the main question here is that which loan suits you the best, a Car loan or a Personal loan?
Car loans and Personal loans are the most common financing options. You can easily obtain these loans, if you meet their requirements. Car loans are actually a type of personal loan. Let us see the differences between the two, Car Loan is strictly used for the purpose of buying a vehicle, whereas the personal loan can be used for various purposes. If you want to take loan for buying a car, you can simply take a car loan but if you need money for different purposes such as home renovation, vacation or wedding, a personal loan is the best option. Choosing a type of loan for purchasing a car will depend on certain factors. Each loan have its own pros and cons. So, it is necessary to look and compare them, before applying for any.
Personal Loan can be taken for many purposes such as home renovation, consolidating debts, holiday, festival, wedding or for purchasing a car. You can take the personal loan of agreed amount that you can pay off fortnight, weekly or monthly until the agreed loan term completes. The longer the tenure of the loan, the more money you have to pay in interest. So, keep this in mind while calculating your term length and repayments.
You can select both secured and unsecured loan options based on your requirements. In case of Secured loan, you have to keep an asset (vehicle, jewellery, etc) as security against loan. If you fail to repay the loan, you will lose your asset. The interest rate will be low for secured loans. In case of unsecured loan, lender will check your credit history and not ask for any collateral, but the interest rate will be high for this loans as the lender take high risk without any guarantee of repayment. You can also choose between a variable and fixed interest rate.
If you are taking out a loan for a car, look at the repayment options, interest rates, fees and the early exit penalties when you are comparing loans. Let us see Pros and Cons of personal loan:
Pros of personal loan:
- You can arrange it easily over the internet, phone or face-to-face.
- No restrictions on how you spent it.
- You can take to pay whole cost of the car, or a part of it.
- Flexibility in repayment (long vs. short term).
- You own the car, so you can sell it if you face financial difficulties, but this will not be in the case of other loans.
- You can choose the loan period, but remember the longer the loan term, the more interest you have to pay.
Cons of personal loan:
- You might need to wait for the money.
- Personal loans are not always the cheapest method of borrowing. When comparing loans, Focus on APR (annual percentage rate) and the total amount payable.
- Most consumers won’t qualify due to poor credit score.
- Interest rates likely to be on the high side.
Car loans are actually a type of personal loan. Like personal loan, you cannot use the loan amount of car loan for any purpose, you have to use the car loan amount only for purchasing the new or used car. In case of car loan, you don’t need to put your asset as security, car itself serves as a collateral for the loan. If you fail to repay the loan, the lender can seize your car. The loan will be paid in fixed instalments over the tenure of the loan. The lender enjoys ownership over the asset until the final payment is made.
Car loans almost have fixed rate loans that means your interest rate will be locked until the term of the loan you agreed too. So, before applying check for the low interest personal or car loans.
The terms of the car loan changes from 1 to 5 years and will be determined, along with your repayment regularity and amount, at the starting of your deal. Then, you need to pay off the loan in the particular time. If you fail to make repayments, you need to make a lump sum payment at the end of the tenure of the loan, this is the time where some borrowers decide to refinance the loan. Car fixed rate loans offer very rare flexibility. If you want to close fixed rate car loan earlier, you have to pay hefty penalties. Try to compare and negotiate the interest rate.
Pros of Car Loan:
- Easy to obtain with average credit history
- Mostly lower interest rate.
- Often a convenient ‘on the spot’ finance solution
Cons of Car Loan:
- Pre deposit is generally needed to secure the loan
- you don’t get title to the car until you pay the final repayment
Many consumers will look for a dealer-financed auto loan, when it comes to buying a new car, as it is quick and convenient. But in some cases it will be better to obtain a personal loan instead. It all depends on person’s requirements.
When deciding between a car loan and a personal loan, take few things into consideration such as the loan flexibility, interest rates, repayment restrictions, fees, charges and the terms & conditions. Don’t forget other costs related with the car such as fuel. Registration fees, car insurance and services.