can i use a personal loan to buy a car

Unsecured Loan against Car Loan

The number of people who apply for a personal loan has recently increased. Some started to perceive personal loans as a viable alternative for funding such large purchases.

Personal loans are an unsecured loan issued by the bank or the non-bank financial company to an person to meet their financial requirements. The amount of personal loans offered depends on a variety of factors, such as the applicant ‘s salary, work background and credit history.

Auto loans on the other hand are loans used primarily to help pay for the vehicle. Some of the car loan plans cover up to 80% of the vehicle’s overall cost. You would have to pay the remaining 20 percent of the cost of the car.

The biggest difference between a personal loan and a car loan is that an asset is not needed to use the loan. This ensures that you do not need collateral in the form of land or gold to make use of the loan. By comparison to auto loans and many other loans, a default on the repayment of the loan doesn’t result by your sale.

The key thing to remember is the two forms of loans’ interest rates. In general, the interest rate on a personal loan is much higher than that of a car loan because of the high risk. This is also because no collateral is needed for personal loans. The investor has nothing that you can sell to get the money back.

It may be that you do not have the funds to pay the other 20 percent of the car’s cost. For these situations, taking a personal loan might be a reasonable idea, as you can get the whole sum at once. Is it really the wisest choice to purchase a car with a personal loan?

Is it good to purchase a car for a personal loan?

When choosing a personal loan or a car loan to fund the purchase of your car you have to weigh several factors. Many of the key points to remember before choosing one of these choices are listed below:

Loan volume and interest rate offered

Personal loans typically have a much higher interest rate compared to car loans, as previously stated. The cumulative amount of interest you are supposed to pay for the personal loan or the car credit is largely dictated by your credit rating and credit score.

It is usually advised that you choose a personal loan if you have a good credit rating and if you have a poor credit rating, you choose a car loan. Since a car loan usually accounts for just 80 percent of the vehicle’s overall cost, if the car cost is higher, the remaining 20% the become a large sum. At the other hand, a personal loan would give you 100 percent of the money you need to purchase the car. A strong credit rating means that you get a personal loan covering the entire expense of your vehicle at a fair interest rate.

When you have a poor credit record, you should get a car loan. It is because the availability of a guarantee means that the cost of car loans is much smaller. Thanks to this collateral, borrowers usually have no major issue in the use of car loans. The general interest rate in car loans range from 8.5% to approximately 14%, while the interest rates for personal loans can easily increase to 20%, and often even higher.

Intention of using the loan

A car loan can not be used to purchase anything but the car by using the money lent. A personal loan can be used to buy the car and can be used on any costs you like. If you have other expenses other than the expense of a vehicle, it is better to look for a personal loan.

Loan term

The duration of both loan forms is very different. The tenure of a personal credit varies from 1 to 5 years, while the tenure of a car credit ranges from 3 to 8 years. Both options have their own benefits and disadvantages. A shorter loan tenure means that the interest you have paid will be lower. Nevertheless, the short term means that the amount to be billed as EMI is far higher.

Everybody wants the repayment of the loan to be done as early as possible. When you have the resources to repay big EMI fees, you can use a personal loan for a shorter period. At the other hand, car loans have a lower interest rate and a longer term. The only thing to take into account in a longer term is the overall amount that you have to pay as interest.

Ownership of the vehicle

If you opt for a personal loan to purchase a car, the greatest difference is ownership of the vehicle as opposed to a car loan. As car loans are secured loans, the vehicle ownership will only be passed to you after the loan term has been completed. The selection of a personal loan would automatically offer ownership of the vehicle as soon as you buy the vehicle. This is an interesting choice to understand this and the lack of down payment in terms of a personal loan.

Procedure for use of personal loans and car loans

In most cases, approval of the use of a personal loan is much harder than a car loan due to lack of collateral. The application of a personal loan with a poor credit score attracts very high interest rates or can even contribute to the rejection of the application. At the other hand, the availability of a collateral makes car loans easy to use regardless of the credit score.

The process for making use of personal loans and car loans has recently become much simpler. The increasingly growing number of borrowers in banks and non-bank finance companies has made the use of loans a easy operation. A lot of documentation can be needed to receive a personal loan approval.

The option of either a personal loan or car loan to fund your purchase of your car should be determined taking into account factors like loan term, principal, EMI sum and the rate of interest you plan to pay during your loan period. If you wish to complete the loan period early, personal loans with a minimum sum charged as interest may be a good choice. Auto loans can be a good option when a large EMI cost can not be charged every month even if the loan balance is reimbursed in a longer period of time. Test the growing banks and non-bank financial entities and compare all available options before making a decision.

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