Are you in the market to purchase a brand-new car? You might as well need a loan to cover the overall costs. Car loans and personal loans are major financing options you can consider. Believing that you meet the existing lending requirements of these loan types, it is relatively easier to obtain them. At the same time, it is equally important to understand the difference between the two to determine the best choice.
There is no denying the fact that new cars do not come at a cheap price. Unless you have ample cash lying around to make the purchase, you need financial aid for the vehicle. With a significant amount in line, you might wonder which loan is the best option for you -a car loan or a personal loan. While you can leverage either of the loan types to finance your car, one could be a better option than the other in your case.
Trying to decide between a Car Loan and a Personal Loan?
Through this blog we will cover the major differences between Car loan Vs Personal Loan.
What is a Personal Loan?
A personal loan is an unsecured loan that comes forth with a wide range of uses. Most people consider taking personal loans towards consolidating debts, paying for house repairs, and covering or upgrading car repairs. You can leverage personal loans for any type of expense -like financing your new car.
Personal loans are usually available with a higher rate of interest than car or auto loans as personal loans tend to be unsecured. Typically, you might not require making a down payment. Still, some lenders might charge an origination fee.
Also Read: How to Get a Personal Loan with a Bad CIBIL Score?
What is a Car Loan?
A car or auto loan is a type of secured loan that makes use of the car as collateral. This implies that if you end up falling behind on the payments, the lender might consider repossessing your car to fulfill its losses.
As the lender is guaranteed to be paid in one way or the other, it becomes less risky for them to loan the desired amount of money. Also, as it is less risky, lenders pass on the relevant savings to you through a reduced rate of interest -saving you significantly throughout the loan’s life.
Also Read: How Do You Get a Car Loan with a Low CIBIL Score?
Understanding the Differences Between a Personal Loan Vs Car Loan
What is the difference between a personal loan and a car loan? A personal loan is used for multiple purposes -even buying a car. On the other hand, a car or auto loan is specifically aimed at purchasing a car. Every loan type comes with its own pros & cons. Therefore, it is important to go through the requirements of both in detail before you sign the document and hire a personal loan agent.
Rate of Interest:
Personal loans tend to be unsecured. Therefore, the rate of interest can be higher in this case as there are higher risks involved in the process of lending. The payable interest rate on a personal loan varies depending on several factors -including your overall income, credit score, and others. The better credit score you have, the better chances you have of availing the loan amount of your choice at competitive interest rates.
With respect to car loans, the car purchased serves as collateral. When borrowers fail to repay the desired loan amount, the car will be then repossessed by the lender or the bank. The minimized risk of lending gets transferred to the borrowers in the form of reduced rates of interest.
Amount of Loan Offered:
It is recommended to select lending institutions that enable you to borrow around 100 percent of the total car’s ex-showroom price as personal loan. It is possible only when you have a decent credit score.
With a car loan, you can borrow up to 80 percent of the ex-showroom price of the vehicle. It is one of the main reasons why most people prefer availing a personal loan to cover the remaining amount that they require.
Loan Tenure:
For both types of loans, the repayment tenure tends to vary. An immediate personal loan offers you a repayment tenure of around 60 months. On the other hand, in case of car loans, most lenders tend to offer a repayment tenure of around 7 years.
When you have access to a longer repayment tenure, it offers the luxury of ensuring smaller investments. However, you will end up paying an increased amount of money as interest rates. A shorter repayment tenure will include larger installments along with a lower amount of interest rate.
It is recommended to select the option allowing you to pay the loan installments without making compromises on other types of financial commitments. You can leverage the functionalities offered by a reliable online EMI calculator -the one offered by Real Money Solutions. It allows you to check the EMI you are expected to pay for the respective loan amount and its subsequent interest rates.
The objective of the Loan:
There are several reasons to avail of a personal loan. There are no specific restrictions on the objective of borrowing the loan amount. The only exception is that the funds obtained from the loan should not be used for any illegitimate purpose.
On the other hand, you can make use of an auto loan solely for funding your car or vehicle. If you wish to combine your purchases with other expenses, it is recommended to turn to personal loans for maximum profits.
Ease of Loan Availability:
When compared, auto loans are comparatively easier to get access to. It is because your car serves as the collateral while reducing the overall risks of borrowing. It is important to pay attention to developing a decent credit score. Moreover, it is equally important to make sure that all your loan documents are in place to get your loan approved without any issues. If you are interested in securing a personal loan without a pan card, you have to meet a strict eligibility criteria.
Procedures to Avail the Loan:
It is usually harder to ensure approval of a personal loan than a car loan. It is primarily because of the lack of collateral. When you apply for a personal loan with a poor credit score, it will end up attracting higher interest rates. Moreover, it can also result in the rejection of your loan application.
On the other hand, car loans can be easily availed without much heed to the credit score. It is because of the presence of your vehicle as collateral. Recently, the procedures to apply for both personal loans and car loans have become easier. With the constant rise in the number of reliable lenders including both banking and non-banking institutions, it has become a simpler process to avail loans. For personal loan approval, however, you might require access to more documents.
Also Read: Home Loan vs Personal Loan Which One Should You Opt for
Trying to decide between a Car Loan and a Personal Loan?
Conclusion
The ultimate choice of either selecting a personal loan or a car loan for buying your new vehicle should be analyzed by considering several factors -like principal amount, loan tenure, the amount of interest, and the EMI amount. Personal loans are great options if you wish to get off with the total loan tenure soon enough with a minimal amount as the rate of interest. On the other hand, car loans are a great option if you are not able to pay a higher EMI amount every month and want to repay the desired loan amount over a longer span. You can check out the best available options with both banking and non-banking institutions at Real Money Solutions to compare different loan options.
As one of the trusted private money lenders in Mumbai,we offer a wide range of financial services including both personal and car loans in mumbai.
