Is a car loan the same as a personal loan?

Posted on 21 December 2018 by Tony Santos

Let’s face it, there’s nothing more convenient than being able to drive to and from any place you want. However, considering your current daily expenses, buying a car, whether brand new or second-hand, may be problematic. For this reason, taking out a loan could be your best bet.

The most common loans to choose from are car loans and personal loans. Assuming you’re able to provide all the requirements needed for each one, it is fairly easy to get one. Today, applying for either personal or car loans is mae much easier thanks to online applications. You can easily look at car loan rates and figure which choice is the best for you.

But what is the main difference between the two?

Personal Loans versus Car Loans

There are two kinds of personal loans, secured and unsecured. The former requires you to secure your loan against something of value like your house so that the lender can seize ownership of the asset if the loan is not repaid. The latter, on the other hand, considers only your credit status.

Car loans is a kind of personal loan used solely for the use of purchasing cars, as the name implies. It becomes a secured loan if you put up your car as the asset of value in the event that you are not able to repay the loan. This type of loan considers the depreciation value of the car over time and may require you to make a downpayment early in the term. Just like mortgages, the lender technically owns your car until you have made the final payment.

Important things to consider

Before you choose one on a whim, make sure you know the details involved in each type of loan. Consider the following items first:

Terms of payment

Look at how much you need to pay monthly and see if it falls within your budget. What you want is a monthly payment with low interest so that paying for the car would not put a dent in your expenses. You should also look at the payment terms. Note that longer payment terms will most likely have a lower monthly payment amount, but will have a higher interest over the agreed loan term. On the other hand, short payment terms have higher monthly payments, but will have less interest since you will have paid the principal rate immediately.

Interest rates

Interest is what you pay the lender for providing the payment to purchase your car. The amount is usually based off of the car’s list price and your current financial status. Personal loans have higher interest rates than car loans, but it can still be lowered if it is a secured personal loan.

Credit score

If you decide on getting a personal loan, make sure that you have good credit standing. The lender will want to see if you have the capacity to make the monthly payments or have a history of not paying debts. In case you have a less than ideal credit score, you try your chances in getting a car loan instead; but do note that they can increase the interest rate because of it.  Regardless of the type of loan you choose, make sure you have good credit standing so that the lender feels at ease.

Consider all of these before settling on a loan type. You should also look for other lenders and compare interest prices and term flexibility. This can help you see which can fit in your current financial situation and allow you to make the payments without any problems.

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