Buying a car can be a real tough decision for a middle-class family. After the first decision of getting a car is made, the next big thing is finances. Getting finances for your car can be really difficult. It is then when people generally sit back to understand what exactly are they looking for. After having considered the option of getting a loan, people are generally confused which among Car Loan or Personal loan would be a better choice.
Here, in this article, we would be talking about the ins and outs of both the type of loans. We would finally be also predicting that which type of loan would suit you the best.
What Is Car Loan?
Well, not many would be confused with what car loans are for. The name of this particular type of loan is pretty self-explanatory. This type of loan is generally considered as a type of personal loan, that is used to buy new cars, used cars or even for existing cars. Generally, banks help with this type of loans and can be availed with proper documents and credit scores.
What is Personal Loan?
Personal loan, unlike any other loan, is not issued for a particular purpose. In this type of loan, the money is not monitored by the bank, i.e. the receiver can use the money for any of his or her personal use.
Personal Loan vs Car Loan
Well, the conflict of a personal loan and a car loan can only be summarised with a concrete comparison between the two forms of loan. Here, we would be doing just the same. We would be checking out the advantages of one form of the loan over another. We would get to the conclusion by a comparative study.
Type of Loan:
A personal loan is a type of unsecured loan, while a car loan is a type of secured loan. Describing the term used above, a secured loan is a loan which has been offered on the basis of an asset or any collateral. In case of an unsecured loan, no such collateral is offered.
2. Purposes It Can Be Used:
A personal loan can be used to purchase anything that can range from jewellery to private vacations. However, car loans are restricted to the purchase of cars. Private loans thus happen to be more generalised, while car loans are restricted to the purchase of cars alone.
First of all, what is collateral? Collateral happens to be an asset of value that a borrower offers to the lender in order to secure the loan. In simple words, when getting a car loan, the collateral can be your house or property that you have. The bank has all the rights to seize the land if you fail to repay the loan.
Now, car loans have collateral attached to it. However, personal loans are offered only on the basis of CIBIL score which is a score which determines how likely you are to repay a loan and gives the perfect yardstick to the lender.
So, when you avail a car loan and default on the loan, you may have to lose the collateral, i.e. the asset that you had showcased as collateral and also it would affect your CIBIL score. However, when it comes to personal loans, if one fails to repay, his or her CIBIL score is hugely impacted and there can also be legal proceedings against the person.
4. Interest Rates:
Car loans, being a secured loan has lower interest rates. Which means that the lender is assured of a return either in cash or in kind and that is why the risk for the lender is visibly lower and thus the lower interest rates are availed by them. On the other hand, in the case of personal loans, interest rates are higher. Due to its unsecured type, lenders are always worried about the return, which affects the interest rates evidently.
5. Application Form And Loan Grant Time:
Personal loans generally have a shorter application form. This is mainly because of the absence of collateral. Also, personal loans are granted faster, if at all they are to be granted. The reason behind the same is that when collateral is offered, the same is to be checked by the lender which takes time, the absence of the same leads to easier checking. Car loans, on the other hand, has a longer form and takes greater time for applications to be cleared.
While above we have discussed with the advantages and the disadvantages of the two types of loan, we would not be able to pick the best one for you, as that would be a very subjective issue for one and all. If you are someone who is determined to get a car, has a stable income and has some valuable asset, car loan would be the pick. If you are someone who is not very stable on income and also you are not very sure if you would be able to pay the loan that you take, a personal loan would possibly be a better option.
No matter what, under no circumstance would we suggest you default on any loan. A black spot on your CIBIL score would have a real bad impact on your future financial goals. Try to be wise enough while taking a loan at an hour of crisis. Decide if you really want that loan or it can be dealt without. Unless you are direly in need of what you are going for a loan which you are not sure you would be able to repay, we would suggest that you refrain from claiming the loan.
Hope that we have been able to help you make the right choice of whether to take on car loan or personal loan. If the article did help you, then please let us know in the comment section!