Personal Loan vs Used Car Loan: Which One Should You Choose?

Availing loan from banks, different financial institutions is quite popular now. A loan is taken for multiple purposes. With purpose comes numerous types of loan. A second-hand car can be bought using a personal loan or a car loan.

What is a personal loan?

A personal loan is an unsecured form of loan that an individual can borrow from a bank or a financial institution when in need of financial help. People use a personal loan to meet sudden requirements or other needs. The credit score must be good for availing a personal loan.

What is a used car loan?

A used car loan is a secured loan. Whatever the credit history is of the borrower, it is easy to get the loan. Only 70%-80% of the loan amount is sanctioned out of the total value of the car. Interest rates also vary depending upon the condition of the car.

Factors discriminating personal loan and used car loan

Rate of Interest: The interest rate is one of the important factors when taking a loan. The used car loan quotes an interest of 10% – 15%, whereas a personal loan quotes 14% – 20% of the interest rate. The interest also has other deciding factors. If the borrower has a stable income, significant employment, and good credit history, the interest rate of a personal loan might be worthy. If the car is not in good condition, the interest rates will be high. The interest rate keeps on varying between different lenders.

Loan Period: The loan tenure for a used car loan is eighty-four months or seven years. In some changes, the lender provides 92- 96 months or eight years. Maximum loan duration of personal loan is 60 months or 5 years. The tenure for a personal loan is extended in rare cases. The tenure varies from individual to individual for deciding which loan to opt for.

Loan Amount: Personal loan provides the entire amount for buying the car. Even the loan amount can be greater than the amount required for buying the second-hand car. But the second-hand car loan does not provide the total loan amount. Up to 70% – 80%  of the price of the car is sanctioned as the loan amount. The rest of the amount of the price of the car is borne the borrower himself. If the borrower is able to pay the initial down payment, he can opt for the used car loan.

Credit Score: The credit score is on high priority when deciding for a personal loan. If the credit history is crisp and clear, an individual can borrow a personal loan to buy a second-hand car. The credit score does not matter much when taking a used car loan. If an individual’s credit score is not well, he may opt for a second-hand car loan.

Process of loan approval:  If an individual wants the loan quickly, the best option for him is to avail a personal loan. The time taken for approval of used car loan is more than the personal loan.

There are factors with both pros and cons which decide the loan type an individual wants to avail. It is the borrower’s call to decide the loan type.