Need a loan to purchase your dream car? If yes, then you can either opt for a car loan or a personal loan. These are the two most common loans available in the market today. The entire process of obtaining a loan is very easy once you meet the requirements of the lender.
Now that you can opt for a personal loan as well as a car loan for purchasing a car. It is important to differentiate between the two, and then make an informed decision.
A personal loan allows you to borrow funds from an institution for various purposes. A personal loan is an unsecured loan which means it has high interest rates. Unlike a car loan in India, a personal loan is not restricted to motor vehicles. You can also use a personal loan for renovating your home, debt consolidation or taking a holiday.
A car loan, as the name suggests, can only be availed to purchase a car. A car loan is secured, where the vehicle serves as the collateral. When you apply for a car loan, you should do a thorough research of all the interest rates and pick the best rate as per your requirement.
Which is better?
A car loan outscores a personal loan on a number of factors. From the perspective of interest rates, a car loan being secured, has a lower interest rate. Your credit score is important when you apply for a personal loan, so a bad credit score may act as a deterrent. Personal loans also carry high processing charges.
The credit score and higher interest rates are factors that tilt the scales in favor of the car loan. The car loan is also easier to obtain, as the dealer whom you purchase your car from can set you up. They usually have tie ups with banks or other NBFCs who offer car loans. A car loan may also require you to pay an upfront amount as down payment for the loan. A personal may also have variable interest rates as it is an unsecured loan.
Irrespective of what you pick, it is important that you carry out a thorough research and make an informed decision with respect to which loan would be more suitable.