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Personal Loan or Used Car Loan? This is What Works Better for You!

When you want to buy a used or secondhand car, you have two primary financing options: a used car loan and a personal loan. Each has its pros and cons, and the best option for you would be based on your needs. You can make this decision for yourself after understanding how each loan works and the differences between the two.

A personal loan is an unsecured loan, meaning no collateral is required. A car loan, on the other hand, is a secured loan. Here, the car itself serves as collateral. If you cannot pay Equated Montfor holy Instalments (EMIs) loan, your car can be taken away. In the case of a personal loan, since your car is not collateral for the loan, it will not be taken away if you default. There can, however, be other consequences, such as legal proceedings after a certain number of defaults.

  • Interest rate

The main thing you need to know about the difference between secured and unsecured loans is that the type of loan determines the interest rate. Since the risk is lower for the lender in the case of a secured loan like a car loan, the interest rate tends to be lower as collateral is present. Currently, the interest rate for a car loan can range between 7% to 15%, while the interest rate for personal loans is 10% to 24%, depending on the lender.

  • Credit sco, re

Your credit score plays a huge role in determining your creditworthiness, which lets the lender know whether you are a high-risk borrower or not. The higher your credit score, the better your loan eligibility for a personal loan. However, it’s easier to get a loan for a used car loan, regardless of your credit history. Here, the amount of loan sanctioned, how, howeverever, will be up to 70% to 80% ’s value.

  • Loan tenure

The maximum loan tenure of a personal loan tends to be five years. On the other hand, a used car loan is a longer-term used car loan if you choose for up to seven years. While a longer loan tenure does reduce the EMI amount and make it easier to meet your EMI obligation monthly, it can increase your overall interest outgo over the long term. Hence, if you don’t require a longer loan tenure, you should not opt for it just because it is available.

Which works better?

If you have narrowed down on the car you wish to own and want quick funds but don’t have a promising credit score, you could still consider a personal loan. This is because of the advantages it offers. You can easily apply for a personal loan online and use a personal loan EMI calculator to determine your monthly obligation towards this loan.

Even if you have a high credit score, you should still consider a personal loan for buying your car because of the process of application and disbursals if you choose the right process lender.

Elizabeth R. Cournoyer

Web enthusiast. Internet fanatic. Music geek. Gamer. Reader. Hipster-friendly coffee practitioner. Spent 2001-2007 merchandising human hair in Fort Lauderdale, FL. Spent 2001-2007 short selling tinker toys in Fort Walton Beach, FL. Spent 2001-2007 importing acne in Phoenix, AZ. Spent several months importing methane in Mexico. Spent the better part of the 90's creating marketing channels for wooden horses in Bethesda, MD. Lead a team implementing toy monkeys in Deltona, FL.

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