Many people are availing personal loans for a lot of reasons – whether using it for
- house renovations
- educational purposes
- medical or emergency purposes
and even consolidating some of their existing loans. However, if you want to purchase your own car, best route will be applying for a car loan, right? Well, here’s “good-to-know” information on that subject – you can also finance your car with the use of a personal loan. Confused? While car loans cater specifically for financing or purchasing a vehicle, personal loans can also be used to buy your own dream car. The only question is which loan will suit you better? Here’s an in-depth comparison for you to better understand.
Personal Loans
Personal loans are available for people who want to borrow money in order to use or pay for something to which they don’t have any cash up front. As earlier mentioned, they can be used for education, home renovations and the like but this of course does not include the purchase of a home. It allows you to borrow money and pay it back depending on the agreed loan term. However, you have to keep in mind that the longer your loan term is the more interest you will incur thus more money for you to spend on repayments. There are 2 types of personal loans:
Secured
Secured loans offer a much lower rate because the loan has corresponding collateral in case you won’t be able to make the payment. You can also choose between a variable or fixed interest rate.
Unsecured
Unsecured loans on the other hand, have no security and the loan amount you can take out is quite limited. They also have the same features like the secured loans.
Car Loan
A car loan on the other hand is also a personal loan. However, they are specifically used to purchase a new or used car. Aside from that, car loans usually have fixed rate so the interest rate you will be paying will be same throughout the life of the loan.
The terms in a car loan varies between 1-5 years and most of the time determined with your repayment schedule at the start of your loan. If ever you miss a payment, you will be required to pay a lump sum payment at the end of your loan which sometimes for some borrowers are a bit steep and would require refinancing. Another thing to remember; flexibility to make payments in a car loan is offered rarely and if in case you want to pay off your car loan earlier, same interest rates apply as the interest rates are fixed.
At the end of the day, you are the decision-maker in choosing the best loan suitable for your needs. Take into consideration your financial capacity, fees, interest rates, repayments options and other early termination fees. Don’t be quick in making a decision and be sure to plan well.
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