There are various financing options available in the market for anyone looking to cover different expenses such as buying a car, home renovations, marriage etc. Typically, personal loans are opted for meeting all of the above. However, when it comes to buying a car, one can opt for either a personal loan or a car loan. But what are the differences between the two, and what factors should be considered before signing on the final terms while opting for each type of loan?
Personal Loans:
Personal loans can be obtained in a lump sum amount from any bank or lending institution against collateral, which allows the lender the right to seize the asset in case of default. Most of the personal loans are generally unsecured in nature. These can be used to finance anything from a wedding to vacation, upon the borrower’s discretion. The interest rate on loan and the loan duration are the two deciding factors that determine the total outgo on personal loans. A personal loan calculator can help one predict future payments.
1. Interest rates:
Since personal loans are unsecured, they come with a higher interest rate attached to them. Also, a person’s credit score needs to be in excellent shape to avail of a personal loan, as the approvals team decidedly follows a strict procedure before allotment. While the interest rate on the loan is inversely proportional to a person’s credit score, the loan amount is directly proportional to a person’s credit score. People with better credit scores will enjoy better loan terms and vice versa.
2. Duration:
A set repayment period of 12, 24, 36… Months is very common when it comes to personal loans. The longer the repayment period, the more will be the interest payout. However, the monthly repayments will be less as they will be spread out over a longer-term. Similarly, a shorter repayment period will entail higher monthly payments and low-interest payout, as the principal is being paid out faster.
Car Loans:
A car loan can be obtained against the vehicle one intends to purchase, and as such, the lender can seize the vehicle in case of loan default. One can repay the car loan in fixed instalments. A car loan EMI calculatorserves as a useful tool in determining the loan’s interest rate and duration.
1. Interest rate:
Car loans usually have a lower interest rate since these are secured loans. A car loan calculator can be used to arrive at different monthly payments that will accrue using different interest rates and find their comfortable rate. Unlike unsecured personal loans, the interest rates are fixed and not subjected to any increase or decrease.
2. Duration:
Generally, the repayment period for car loans is fixed at 36, 48, 60 or 72 months. As far as the loan duration is concerned, the higher the monthly payments, the shorter the loan term and vice versa. Car loans can be easily obtained even with mediocre credit history as opposed to personal loans. To find one’s eligibility to get a car loan, consider trying out a car loan eligibility calculator.
Different banks and lending institutions are offering both personal loans and car loans at varying rates and deals. One should look at three considerations before sealing the deal:
- What does my credit history look like?
- Do I have the collateral to back my loan?
- What interest rate will I be comfortable with?
One should make an informed decision based on the above and one’s individual circumstances.