Planning to take a car loan to buy your new car this Diwali? Well, you must know that lenders generally lend up to 80% of your car’s cost. If the remaining 20% of your car’s cost is not readily available to you then you can consider applying for a personal loan instead of a car loan. However, your decision (whether to take a personal loan or car loan) is dependent on several factors which are mentioned below:
Car loans are secured loans which means if you default on your loan, the bank will seize your car. On the other hand, personal loans are unsecured loans which means you are not required to pledge any collateral against the loan. Hence, if you buy a car and are unable to pay the loan, the bank won’t be able to seize your car.
2. Interest rates:
Since personal loans are unsecured loans, the rate of interest is generally higher than car loans. The rate of interest that you would be servicing in a personal loan or car loan will depend on your credit rating and credit score. While a motor vehicle loan can be availed at rates ranging between 8.5% and 14% per annum, most personal loans attract interest in the range of 10.75% to 20%.
As mentioned above, if you are availing a car loan, you will get the loan up to 80% of your car’s cost as the loan amount. But a personal loan can secure for you 100% of your car’s cost. So, if you don’t have the funds to pay 20% of your car’s cost you can go for a personal loan rather than a car loan.
The loan amount that you get through a car loan can be used only for purchasing a car. However, money borrowed through a personal loan can not only be used for buying a car but on other things too which you might have your eyes on.
5. Ease of availing:
As said above, personal loans are unsecured and thus, difficult to get. Lenders are too cautious while lending a personal loan due to the high risk involved. If you apply for a personal loan with a bad credit score, there are chances that you might get a higher interest rate or your application will be out-rightly rejected since your risk-value is very high. On the other hand, a car loan is relatively easier to get. As it is a secured loan, there is less risk for lenders.
Many a time you can make an on-the-spot deal of a car loan right at the car dealers’ place since they have a tie-up with many top banks and NBFCs to woo their customers. However, personal loans are not so easily attainable and sometimes involve a lot of documentation and background checks.
Since a car loan is a secured loan, the car won’t be transferred or bought in your name until the final installment is paid off by you. Also, you will have to make a down-payment at the onset of the car loan. However, these days, there are 100% financing car loans in the market too but their interest rate is higher or tenure is longer than the regular ones. On the other hand, if you get a car through a personal loan, you will get the ownership of your car immediately and no-down-payment from your end is needed.
The ultimate decision of which loan should be taken boils down to the individual. If you have the down-payment amount and wish to pay a lower rate of interest then you should go for a car loan directly. You can also choose a car loan if you have a poor credit score.
On the other hand, if you do not have the required sum for down-payment and are OK with paying a tad higher interest can go in for a personal loan. In that case, first, it’s important to check personal loan eligibility criteria and then apply for the loan.