The number of people opting for personal loans has skyrocketed in recent years. Many are starting to view their loans as a viable option to finance some of the larger purchases. A personal loan is an unsecured loan given to a person by a bank or non-bank finance company to meet their financial needs based on income level, employment history, and credit history of the applicant.
Car loans on the other hand are loans used mainly to help with car payments. Many Car Loan options offer coverage of up to 80% of total car expenses. The remaining 20% of the care costs will have to be borne by you.
Is Personal Loan a good option to buy a car?
There are many things to consider before choosing a personal loan or car loan to pay for your car purchase. Below are some key points to consider before choosing any of these options:
Loan Rate and Interest Rate offered - As mentioned earlier, personal loans have a much higher interest rate than a car loan. The amount of interest you will have to repay your loan or car loan is determined mainly by your credit score. It is usually advisable to choose a personal loan if you have a good credit rating and choose a car loan if you have a bad credit rating. Since a car loan covers only 80% of the car's total cost, the remaining 20% can be big money if car costs are high.
A personal loan on the other hand will give you 100% of the total amount you need to buy a car. A good credit rating will ensure that you get a personal loan that covers all car expenses at a reasonable price.
If you have a bad credit rating, it may be best to choose a car loan. This is because car loans involve a very low level of risk due to the existence of collateral. As a result of this collateral, lenders often have a little problem when it comes to obtaining a car loan. The Yes Bank Car Loan Interest Rate offered on an average is between 8.5% and about 14% while the interest rate on personal loans can easily increase to 20% and sometimes even higher.
Purpose of the loan - It should be noted that a car loan cannot be used to buy anything other than the car using the loan amount. The personal loans available can be used to buy a car and can be used at any cost you want. If you have to deal with other expenses other than car expenses, it is best to choose a personal loan.
Loan term - The duration of both types of loans is very different. The term of the personal loan is between one year and 5 years while the term of the car loan is between 3 years and 8 years. A short-term loan will mean that you will be paying less interest on those who are available. The short term, however, means that the amount to be paid as an EMI will be much higher.
Car Ownership - If you choose to borrow a car to buy a car, the biggest difference compared to a car loan is car ownership. Since a car loan is a secured loan, the ownership of the car will only be transferred to you after you have completed the loan period. Choosing a personal loan will give you ownership of the car as soon as you buy the car. This and the lack of low-interest rates when it comes to personal loans make it an interesting option to consider.
The process of getting a personal loan and car loan - It is often more difficult to get permission to get a personal loan than a car loan due to lack of collateral. Applying for a personal loan with bad credit will attract very high-interest rates or may even lead to the refusal of the application. A car loan on the other hand can be easily obtained.
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