Financial product decisions are frequently difficult ones. People are perplexed about choosing one of two borrowing alternatives. You can get a car or personal loan to buy a new car.
Personal loans are unsecured, while car loans are secured because the bank owns your vehicle until you repay it. The amount of your personal loan depends on your monthly income, credit score, occupation, etc.
A personal loan, as many know, can be utilized to make any kind of use, including buying a car. While there are auto loans or car loans specifically designed for purchasing a car, some people may choose to take a personal loan instead for its advantages over an auto loan.
On the face of it, an auto loan may appear more attractive when purchasing a car because it has a lower rate of interest and longer repayment duration imposed on it. However, deeper research into it may reveal some facts which may not make an auto loan suitable for all.
Elements Of Auto Loan
Some elements of an auto loan which may not make it the most suitable for all include the following:
- Collateral: An auto loan is always a secured loan that requires a collateral, which in general, is the new car itself. If you fail to make the loan payments, the lender can keep your car to satisfy the loan repayments. This may not be an agreeable condition for many individuals as they do not wish to risk the new car, particularly those who are looking to get the car from private buyers.
- Car Purchase Conditions: Some auto loan providers can have conditions about the purchase of the car itself which may not be suitable for all borrowers. For example, some lenders can make it vital to buy cars from specific dealers. Alternatively they can also impose conditions about the cars you purchase, like not buying cars that are over 10 years old.
- Inflexibility: A car loan, as its name suggests, can only be used for purchasing a car, with terms and conditions specified. On the other hand, a personal loan can be used for any expense, and in terms of using it for a car purchase, it can be utilized for making down payments, monthly installments, refurbishing costs, and more.
How A Personal Loan Works For Car Purchases
If you opt for a personal loan for buying a car, there are some of its own unique elements that you must know about before choosing them.
Also read: Why Would a Personal Loan Be Declined?
Considering the pros and cons of a personal loan in terms of using it for buying a car is essential when making your decision.
Pros of a Personal Loan
- Versatility of Use: A personal loan can be used for any purpose. As far as purchase of the car is concerned, this loan offers the versatility of buying any model, however old or new, from any dealer or seller that you want. You can also choose to ask the loan to cover any additional costs you may incur if you choose to buy a second hand car and have to repair it for your use.
- Quick Disbursement: A personal loan is very rapidly processed and disbursed to you in your account. A personal loan can get approved and disbursed in as little as 24 hours, which means that if you have an urgent need for making the payment for your car purchase, you can do so with ease!
- No Risk of Losing Car: Since in most cases an auto loan keeps the car as collateral, borrowers are always under threat of it getting repossessed by the lender in case of repayment defaults. A personal loan is typically an unsecured one, and requires no collateral, which means you do not need to worry about losing your car in case of failing to make payments on time.
Drawbacks of a Personal Loan
– Higher Interest Rates: Personal loans usually have higheÂr interest rates compareÂd to other types of loans like car loans.
Also read: Getting Personal Loans for Divorce Legal Fees
This meÂans you’ll end up paying more in the long run with a peÂrsonal loan. The reason is that personal loans are unsecured, so lendeÂrs take on more risk if you default.
– Shorter loan terms: Personal loans tend to have shorter repayment terms than car loans. This results in higher monthly payments, especially when coupled with higher interest rates.
– Difficulty approving: Without collateral securing the loan, poor borrowers may find it difficult to get their own loan approved. First, improving your credit score can help increase your chances of approval.
Obtaining a Personal Loan for a Car
Taking out a car loan requires the same steps as any other loan. It is key to prove that the purpose of the loan is to buy a car. Here’s how the process usually works.
– Applying for a mortgage: Start by strategically comparing different offers from distinct creditors such as banks, credit score unions, or online vendors. Review and evaluate credit score profiles across providers. Next, fill out the application well, ensure all of the information are correct, and provide necessary financial data.
– Approval and investment: Once the form is submitted, the lender will assess it and determine whether to approve or deny your request. If authorized, you may be provided a mortgage.
Also read: Know if You Should Take a Personal Loan to Buy a Car
If the terms work for you, sign the agreement, and the lender will use the cash.
-Repayment: The period for repayment typically starts 30 days after the loan is issued, and also you need to make certain you don’t overlook the due dates. This is crucial to avoid going into debt and detrimental your credit score in future. Stick to the payment time table to keep away from any problems.
Final Thoughts
Getting a real loan for a car is straightforward, as long as you have good credit. If you don’t know that whether a car loan is right for you, you can’t go wrong with a personal loan. They are versatile, giving people who are looking to buy unlimited cars a great advantage.
