The dream of owning your own car today is not impossible. Gone were the days when people couldn’t afford or borrow money for a car. Now, all you need to do is avail a loan from the bank and bring your dream car home. The concept of a used car loan has gained a lot of attention in the past decade. An individual can opt for a used car loan when he/she cannot afford the high prices of the cars being sold today or might want to enhance their driving skills before purchasing a new car. Hence they can either opt for a used car loan or an unsecured personal loan to fulfill this dream. What should he/she opt for? Here are some factors to help you make a choice;
Amount of the loan:
The loan amount must be dealt with at the very first step. You need to remember that the banks will only finance 60-85%* of the car value and hence you will have to arrange the remaining amount yourself. As of a personal loan, you can avail a loan which can be equivalent to the used car’s market value. Hence you wouldn’t need to finance any amount except the loan amount.
The interest rates for used car loans generally begin from 11.85%* onward and for a personal loan begins from 10.99%* onward. The interest rate on both these loans will be judged on your income level, employment record, credit history and also the loan amount needed.
Tenure of the loan:
The loan tenure for a personal loan usually is between 5-7 years*. For a used car loan, the tenure depends on the age of the vehicle. In general, a used car loan can be availed for tenure of 4-6 years*.
Importance of Credit Score:
The importance of credit score in a personal loan is far greater than that of a used car loan. This is because personal loan is unsecured and hence the Bank will rely highly on your credit score to be good. As of a used car loan, it is secured and hence the lender can allow a little bit of leverage to the borrower with regards to the credit score.
Complex loan process:
A personal loan is a very popular financial instrument and hence is very quick and easily available. Whereas, for a used car loan, the process is longer than that of a personal loan as there are more checks and documents needed for a used car loan.
Hence, you can see both these loans have their positives and shortcomings. As a borrower, you need to weigh the pros and cons. Accordingly you can then take a decision and bring your dream car home.