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.
Interest rates:
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.
You can know more about applying for a personal loan and about Used car loan
