Buying a car is exciting but also costly. You’ll likely need financing. Two standard options are car loans and personal loans. Both have pros and cons. Choosing between them depends on your financial situation and needs. Read on to compare car and personal loans to help you decide.
How Car Loans and Personal Loans Work
A car loan is borrowing money only for a car purchase, with the car as collateral. Car loans finance 80-90% of the car price, requiring a 10-20% down payment from the buyer. A personal loan is for any legal purpose without needing collateral. The total sanctioned loan amount is disbursed upfront to the borrower, which can be utilised to make the 100% car payment if needed. Thus, No down payment is required to fund the car cost through a personal loan.
Key Differences
The following are fundamental differences between personal loans and car loans:
- Interest rates – Car loans have lower interest, whereas personal loan rates are higher.
- Tenure – Car loans can be repaid over up to 7 years. Personal loans have shorter 1-5-year terms.
- Loan amount – You can borrow more with a personal loan based on income. Car loan caps at 80-90% of the car value.
- Ownership – With personal loans, the car is yours once purchased. For car loans, you own it after the loan is fully paid.
- Flexibility – Personal loans can be used for other expenses, while car loans only apply to the car bought.
- Availability – Car loans are easier to qualify for, given the collateral. Personal loan approval depends more on credit score.
Which Option is Better?
Comparing car and personal loans involves assessing factors like credit score, loan amount, interest rates, income, ownership preference and liquidity for down payment. Excellent credit means personal loans have competitive rates. Poor scores suit car loans with collateral. Personal loans allow expensive car purchases with 100% financing.
Check interest rates and repaying capacity to decide tenure and EMI. Prefer personal loans if immediate ownership matters or you cannot pay the car loan down payment. Evaluating these critical parameters against your financial situation will determine whether a car or personal loan works better.
Conclusion
Choosing a car or personal loan necessitates comparing interest rates, loan amount, tenure, ownership transfer, and income stability based on financial priorities. Karnataka Bank Limited (KBL) is recommended for car and personal loans; it offers an online application and EMI calculator, where you can pick the suitable loan, tenure, and amount according to your repayment capacity.
Joshua White is a passionate and experienced website article writer with a keen eye for detail and a knack for crafting engaging content. With a background in journalism and digital marketing, Joshua brings a unique perspective to his writing, ensuring that each piece resonates with readers. His dedication to delivering high-quality, informative, and captivating articles has earned him a reputation for excellence in the industry. When he’s not writing, Joshua enjoys exploring new topics and staying up-to-date with the latest trends in content creation.
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