Personal loan vs car loan – How do you decide between them?
Whenever you are faced with buying a new car, part of your research process is always to determine the type of credit you want to earn. By comparing the loan amount and interest rate of a personal loan vs car loan, you can get a good idea of the cost of the loan. Both types of loans have their own advantages, so please carefully weigh your options before going to the lender.
Personal loan vs car loan
Personal loans are loans provided by lenders to borrowers for major purchases that they cannot finance themselves, such as house renovations or vacations. A car loan is a personal loan designed specifically for purchases a car.
Personal loans can be secured or unsecured. An unsecured personal loan means that no collateral, such as deposits or assets, is provided for the loan. A secured personal loan means that the lender has loan collateral. For example, if you have a secured personal loan to buy a car, the car will be used as collateral. Therefore, a car loan is usually a secured personal loan.
How to choose from personal loan vs car loan?
Both personal loans and car loans can be used to purchase new or used cars. Your choice should be based on your needs, your expectations for the future, and the car you plan to buy. Read the terms and conditions attached to each loan to help you determine if it is right for you. Not all car loans are financed the same way, and the terms of individual loans may vary greatly.
Before you start, ask yourself the following five questions:
- Do you expect your financial situation to change? If you want your financial situation to change, a personal loan is probably your best choice. If you lose income and you are not eligible, your car will not be used as collateral, which means you will not lose it by taking it back.
- Do you know what car to buy? Knowing which car to buy is a good deal with the lender. Since you are already confident, you can pre-approve your car loan so you can know exactly how much you can afford to buy the next car.
- Do you buy a used car? Buying old instead of new can be an effective way to save money. However, you cannot get credit for buying a used car, especially if it is an old model or more than 100,000 miles, you may need to apply for a personal loan.
- Bad Credit? Although bad credit can make borrowing difficult, bad car loans still exist. This is usually more cost-effective than a personal loan. Loans allow you to get a lower interest rate.
- Do you want to add extra facilities to your car? Whether it’s repainting or replacing the body, modifying your car can be costly. Many car lenders do not allow you to add this value to your loan. With a personal loan, you can add these fees to the loan amount to get extra cash to cover extra expenses.
After all, the most effective way to compare loans is to look at certain options side by side. Using a calculator can help you determine the exact cost of any loan, and comparing APR can give you the most accurate understanding of the final cost of loan options.
Advantages and Disadvantages of a personal loan
Personal loans are much more flexible than car loans; not only can you find them anywhere-on the Internet, at your home bank, in credit unions-they can also get low interest rates without a mortgage. If you need a car now, you still have some shopping that may take time.
- Flexibility to buy the car you want.
- The balance can be used for other purchases.
- The interest rate is usually higher than car loans
- Personal loans have no restrictions on how you use your funds.
Advantages and Disadvantages of a car loan
Auto loans are designed to pay for car expenses and related expenses, such as driver’s license and registration fees. You can get a car loan from an online dealer, bank or lender, whichever is more convenient for you.
- Their interest rate is usually lower than the personal loan
- They usually have a fixed interest rate, which gives you more confidence.
- You can borrow a higher amount.
- The car is a guarantee, so if you lose the payment, it can be confiscated
- Limit the cars you can buy
Choosing between personal loan vs car loan may affect your financial health in the coming years. This is an important decision, and the right choice will depend on your expectations of the lender. You should research your personal loan options. And check how the auto loan works before making any loan decisions.
Recommended for you:
- Commonwealth Bank Personal Loan: An easy guide to taking out
- NAB Personal Loan: What are the Benefits and How to Manage
- How much money can I borrow with a personal loan Australia?
Disclaimer: This article is intended to provide general information only for educational purpose. It does not consider the financial situation or needs of readers and should not be interpreted as a recommendation for any financial product. Before making a decision based on this information, you should consider seeking financial advice.
Haley Hayward is an experienced writer at kredilife.com, where she’s credited with more than 200 articles covering everything from entrepreneurial stories to mental health at work.
She also oversees the Comment&Questions, which poses important admission questions to experts in the field, and regularly hosts webinars on various aspects of the business school experience.
Prior to joining kredilife.com, Haley honed her skills as a freelance writer, tackling a wide array of topics from petcare to car maintenance.
Haley holds a Master’s degree in English Literature from the University of Edinburgh, Scotland.