Recently, the number of people opting for easy cash loans has risen. Therefore, many have started to look at personal loans as a viable option to fund big purchases.
Personal loans are no-security loans issued by banks or non-banking financial companies to individuals to help them meet their financial needs. The personal loan amount offered depends on several factors, such as the applicant’s income level, employment history, and credit history. On the other hand, car loans are loans that have been explicitly availed to aid with the payment for the car.
The most significant difference between getting a personal loan and a car loan is the lack of an asset requirement to avail of a personal loan. Unlike car loans and many other types of loans like to get business loans, a default with the loan repayment will not result in the auction of what you own.
The critical point to note is the interest rate of the two loans. A personal loan has a significantly higher interest rate than a car loan due to the increased risk involved. In addition, as personal loans do not require collateral, the lender does not have anything you own to auction to get back the money.
If you do not have the funds to pay the cost of the car, you can opt for a personal loan, as you can get the entire amount at once. But is it smart to opt for a personal loan to buy a car?
There are many factors to consider before choosing instant business loans, personal loans, or a car loan to finance your purchase. One essential point to consider includes:
Loan Amount and Rate of Interest offered
A person’s credit rating and credit score are critical factors determining how much interest they will need to pay on a personal or car loan. Since personal loans have a higher interest rate than car loans, the total interest you will need to pay is determined mainly by your credit rating and credit score.
A personal loan is generally recommended if you have a good credit rating, whereas a car loan is usually recommended if your credit rating is terrible. Since a car loan typically covers only 80% of the total cost of the vehicle, the remaining 20% can become a significant amount if the price of the car is higher. On the contrary, a personal loan can provide you with 100% of the total amount you need to purchase the vehicle. When you have an ideal credit rating, you’ll be able to obtain a loan covering the entire car cost at a reasonable interest rate.
Getting a car loan is advisable if you have a bad credit rating. That is because car loans involve a much lower risk because of collateral. Because of this collateral, lenders generally do not have a big problem regarding availing of car loans. The general interest rate offered for car loans ranges between 8.5% to around 14%, while personal loan interest rates can quickly go up to 20% and sometimes even more. There are loans apps online that can help you with getting a loan, such as; for business loans, we have a business loans app.