There are several key differences that you’ll be able to experience between a personal loan and a car loan. Take a look at some of the areas that you’ll need to compare and consider between the two types of finance:
Personal loans are one of the most versatile types of finance. They allow a borrower to use the loan to for any number of reasons, including financing a holiday, renovations, studies and, of course, a car. This means that you can bundle extra funds on top of the price of your car to pay off some unexpected bills, you’re more than able to.
Personal loans present you the possibility of borrowing a particular amount of money, which you will make repayments for either weekly, fortnightly or monthly until you manage to make all the repayments over a term of between one and seven years. This amount can be approved for almost anything, with no restrictions on the type of car you wish to purchase being one of the primary advantages here. If you wanted financing for an old, beat-up car, a personal loan would be a more suitable option.
Personal loans are usually unsecured loans and because of that additional risk, they usually come with a much higher interest rate than those of secured loans. This means that the longer the term of your loan is, the more you’ll have to pay in interest overall. Additionally, a bonus of personal loans is that they’re easy to apply for and boast a fast turnaround time. Because of the fact that these loans are unsecured, there’s no requirement for your lender to assess the suitability of the car as security for the loan. There are also usually fewer documents required as part of your application, which also speeds up the process.
The central distinction between a personal loan and a car loan is that car loans are secured by the purchase of the car itself. With that additional security comes better interest rates and cheaper fees, which is the primary benefit that car loans hold over personal loans. This means that with a car loan and personal loan to be repaid over the same period, the former will almost always be the cheaper option for you. They can last from one to five years in duration, with this period to be established before signing the contract. You will be required to make repayments until that particular date.
While a car loan is not dissimilar from a personal loan in most ways, where it does deviate is in relation to how you can use your funds. A car loan provides the funds to finance your car and your car only, so unlike personal loans which afford you the freedom to use them on whatever you like, this isn’t the case with this type of finance. Furthermore, because your loan is secured by your vehicle, your lender will want to be certain that it can earn its money back on your loan should you become unable to fulfil it. This means that the selection of cars that you’re able to buy with a car loan is reduced to newer models that can carry value in the market, rather than any car of any age you like.
All in all, if it’s a car that you’re looking to purchase, so long as it’s not too old, in almost every case it’s best to opt for a car loan over a personal loan.