When the pandemic shut down all public utilities, many realized the importance of owning a vehicle. This collectively led to an increased desire among the general public to purchase a car. However, buying a vehicle is not an easy decision. The decision to finance a car is as tough as purchasing one. Lenders offer various options to help people fund their vehicles. Two of the most coveted options are
The difference between a personal loan and a vehicle loan
Personal loans are typically unsecured and have several different uses. They may be used for various reasons, such as debt consolidation, house renovations, and vehicle repair. Personal loans can finance almost any expense, even purchasing a new car.
The vehicle you intend to purchase in car loans serves as collateral, meaning the car serves as the loan’s security. Throughout the loan, you will be required to pay off fixed installments. Your lender has the right to seize your car if you default on repayments.
Let’s look at the pros and cons of these loans –
|Personal Loans||Car Loans|
Cheaper interest rates: The interest rates on car loans are lower than personal loans. Lenders can offer lower interest rates on car loans because they have the car as collateral for the loan.
Costlier: Usually, personal loan interest rates tend to be higher than car loans. This is because of the unsecured nature of personal loans. Personal loans have elevated interest rates because they have a greater risk of default.
Generally, people opt for vehicle loans if they are sure not to default on their EMIs; they risk having the lender repossess their car. On the other hand, personal loans are preferred by people that do not want to compromise their assets as collateral. Personal loans are also preferred when people don’t have enough savings for an upfront token. However, higher individual loan interest rates often deter people from opting for personal loans for purchasing vehicles.
In light of the above, it would be wise to check the personal loan eligibility criteria and predetermine your EMI using the personal loan EMI calculator before opting for the same.