Differences between Car Loan and Personal Loan
When you are going to buy a car, you may want to find the best financing options for your needs. You have to choose the best option that is convenient, easy, affordable, and also practical for you. There are two popular loan options that are available for you. They are a personal loan and a car loan. In this article, we are going to discuss both loan types, so you can choose the best one for your needs.
A personal loan can be unsecured or secured. If you want to take a secured loan, the loan can be backed up by your assets. The secured loan tends to have a lower interest rate than the unsecured loan. The unsecured loan will be determined solely on your credit status and your credit history.
Sean Martin D. Plantado, head of customer service for Digido.ph, notes that in the case of minor breakdowns there is no point in taking out a car loan. Very often you can get your car repaired for not much money. But even if you pay for the repairs, it will still be much cheaper than a better new car.
On the other hand, the car loan is a type of popular loan that you can use for buying your car. This type of loan requires you to pay the deposit and make some monthly payments until all of the loan balance is paid. You can negotiate your down payment. The bigger your deposit means the lower your monthly payments will be. You can check all the details here https://digido.ph/articles/fast-loans-in-1-hour
Factors to Consider When Choosing Car Loan or Personal Loan
- Payment Terms
Personal loans usually have up to 60 months of the repayment period, while car loans will have up to 72 months. However, you need to calculate the total interest rate that you are going to pay. The longer loan tenor will mean that you are going to pay more interest in the future. If you have a bigger budget for your car, it is a good idea for you to take a short repayment period for your loan. It will help you save a lot of your money in the future.
- Interest rate
When you are comparing both car loans and personal loans, you have to take a look at the interest rate. The interest rate will be calculated based on the car’s price and also your current financial situation. Most personal loans usually have a higher interest rate than car loans. Whenever you are able to choose the right option for you, you can consider choosing a loan with a simple interest scheme compared to the compound interest scheme.
- New and Used Car
This is another factor that you have to consider, especially if you want to choose either a car loan or a personal loan. Most car loans are usually designed for brand-new and also certified pre-owned vehicles. Check on the sellers whether the car can be covered by the car loans or not. If you are going to buy an older version of the vehicle with no dedicated car loan option available, you can consider taking the personal loan.
- Credit score
This is an important factor for you who are looking for getting the personal loan application approved. Most lenders will look at your credit score rating when they are going to analyze your loan application. It is recommended for you to keep your credit score high by paying all of your loan monthly payments on time. Poor credit will cause you to pay for a higher interest rate.
Important Questions to Ask
- What type of car do you want to buy?
The type of car will determine whether you are going to choose a car loan or a personal loan. The car loan will limit your options because many banks will approve a car loan for new cars and certified pre-owned vehicles only.
- Do you have the money to cover the down payment?
If you want to buy a car, you have to prepare up to 20% of the total car price as a down payment. It is recommended for you to have enough money to cover this down payment in cash. The more deposit you can make at the beginning, the more affordable your car loan payment that you are going to pay every month.
- What are some fees and charges that you need to pay?
When you are going to buy a car, you have to consider some fees and charges that you will pay, for example, motor insurance premium, comprehensive third party liability insurance, chattel mortgage, loan interest, loan fees, etc. By calculating all of these fees, you will be able to choose the right loan for helping you buy your car.