Car Loans Vs. Personal Loans
When purchasing a new car, you’re going to be faced with various financing options for buying the vehicle. Typically, most people will be looking at either a car or personal loan. The distinction between these loan types is small but important.
Normally, car loans are secured by the car itself, while personal loans can be used on a range of different things and are unsecured. While the details are subtle, there are some important factors that you will need to weigh up when comparing your options.
The pros of car loans
Lower interest rates: The main advantage of a secured car loan is that they will normally attract a lower interest rate. Because these loans are secured against the vehicle itself, lenders can offer reduced rates as this represents less risk to them in the event of a default.
Higher borrowing capacity: The secured nature of a car loan means you might be able to borrow more than you would with a personal loan.
Fixed rates: With car loans, you can usually get a fixed interest rate which might offer additional security for the borrower. However, it’s important to note that if you want to pay out your car loan early, there might be fees involved with a fixed-rate loan product.
Features: Car loans can also have additional features like balloon payments, which are a great way to keep your repayments lower early on if you are looking at eventually upgrading or selling the car at the end of your loan period.
The cons of car loans
Car age restrictions: Some car loans, particularly those secured against the vehicle, may impose limitations on the age of the car. This restriction could impact the maximum age of the vehicle you’re able to purchase.
The pros of personal loans
Flexibility: If you’re looking to buy a classic or vintage car, a personal loan could offer more flexibility and allow you to choose from a wider range of vehicles.
The cons of personal loans
Higher interest rates: Personal loans, especially unsecured ones, will generally attract higher interest rates. These rates can be significantly more than those offered with secured car loans and are often related to your credit history.
Limited loan amounts: Depending on the loan’s purpose and security, personal loans might be capped at around $10,000. This might not be enough for many types of cars.