So far, 2022 has been a fantastic year for global brand-new car launches. While many car owners are looking to upgrade their rides, a sizable number are looking to purchase their first vehicle.
Typically, buyers prefer a car loan with terms tailored specifically to car purchases. On the other hand, the younger generation likes to obtain stress-free funding, such as a personal loan, to fund their dream car purchase.
The absence of collateral distinguishes a car loan from a personal loan. A car loan uses the vehicle as collateral until the loan is repaid, whereas a personal loan does not.
Furthermore, a car loan can cover up to 70% of the cost of the vehicle, whereas an instant personal loan can cover 100% of the cost.
Now, the obvious question is which one’s better – a car loan or a personal loan? Let’s find out the difference between the two loan options and understand which is better for a car purchase.
Loan Tenure:
Personal loan vs car loan repayment terms is very different. A personal loan tenure ranges between a few months to a couple of years, while a car loan comes with a longer loan tenure of several years. However, both these options have pros and cons. Opting for a shorter-term save on the interest cost but increases the monthly EMI amount. On the other hand, a longer-term reduces the EMI amount but increases the interest outgo.
Those who want to repay the loan quickly must opt for a personal loan with a short repayment tenure. However, a car loan is better for those who want to save interest costs while keeping EMIs manageable.
Interest Rate: Personal loans have a higher interest rate than car loans due to their unsecured nature. However, the payable interest largely depends on one’s credit score, income, and debt-to-income ratio. Therefore, those with a high credit rating must opt for a personal loan to fund their car purchase. However, one must go for a car loan with a bad credit rating. Applicants with a high credit score can grab a lower interest rate on a personal loan without the complexities of a car loan.
Vehicle’s Ownership: An individual buying a car with an instant loan online gets complete ownership of the vehicle from day one. However, those who opt for a car loan do not gain complete ownership until they repay the full borrowed loan. The car’s ownership remains with the lender, who has the right to auction it if the borrower fails to repay the loan.
Loan Purpose: It is important to note that a borrower can use a car loan to purchase a car only. However, those taking a personal loan can use it for other expenses due to its no end-use restrictions. For instance, the borrower may fund their first road trip with a personal loan after buying a car. Those who want to cover other expenses and purchase the vehicle must opt for a personal loan.
Overall, your choice to pick a personal loan vs car loan depends on several important factors like the principal amount, loan tenure, EMI amount, loan purpose, etc. So, you must check different lenders’ terms and conditions and also compare them to make a well-informed decision.
