When you are considering buying a new car, or even a good used one, a loan may be the best way to obtain it. You can take advantage of a couple different types of loans, though, so it may be a little bit confusing to you about which one is the best. Honestly, in the end, the choice will be all up to you, but before you make that type of decision, it is essential to know what the differences between the two loans are and what the pros and cons of each of them will be.
Before attempting to get any type of loan, take a quick look at your credit score and see if there is anything you can do to increase your number. The higher the number you have, the better the loan will be that you can get. Once the comparisons are read below, this will become clearer. For now, just make sure everything is correct on your report and everything that can be done to raise the score has already been completed.
With that being said, it is time to dive into the comparison between personal loans vs. car loans so you can be clear about the difference between them.
Car Loan
As you may suspect, a car loan can only be used to purchase a vehicle. The lender will not hand the check over to you because it is set up to go straight to the lot that you are buying it from. If you are planning on purchasing a vehicle from a private seller, you may be able to work something out with your lender, but most of the time, it is simply better to go through a lot that the lender has worked with in the past.
- PRO – Generally, a car loan is much easier to get than a personal loan. The credit qualifications are less, and the stipulations are not as demanding to obtain.
- PRO – You will be able to qualify to receive a substantial amount more than you would get with a personal loan. The reason for this is that the dealer, or lender, that you are going through would rather see you get into a high-quality car rather than a cheaper one that may break down within a month or two.
- PRO – If your credit is not the best, most lenders will allow you to add a co-signer to the contract. This will help boost your chances of getting the loan because the bank knows they have another party to help pay. This only works if you use a co-signer with excellent credit or above.
- PRO – A car loan will usually have a lower interest rate attached to it, but most of the time, since you will be borrowing more money, it will be for a more extended period of time.
- PROS – On-the-spot financial solution because many car lots will have access to a lender they work with. This means you can file for the loan, get it, and drive away with your new car the same day.
- CON – A car loan of any kind will require the vehicle you purchase to be considered collateral. If you do not make the loan payment on time every month, the bank will take possession of the car and sell it at auction to get their money back.
- CON – Most of the time, you will be required to have a decent down payment before the bank pays anything on the car. Each lender will have different rules, so check around until you find the perfect policy.
- CON – Most lenders that offer a car loan will have stipulations on the car that you can get. For example, the year of the vehicle, the mileage on it, and the asking price.
Personal Loans
Personal loans are private loans that can be used for just about anything that you want to use them for, including a new or used car. Depending upon your credit score and history, they can be obtained with or without collateral. You will want to check out some offers through the iSelect compare personal loans platform to ensure you get the best rates. Let’s look at some pros and cons of this type of loan.
- PRO – Often, this type of loan can be obtained from a lender without putting anything as collateral, including the car you want to buy.
- PRO – You will not need to pay a down payment because a personal loan is not set up to work that way.
- PRO – The money goes to you once the loan is processed and authorized, meaning that you will have cash in hand to haggle the price down because you all know that money talks.
- PRO – If you find a car that is below the amount of the loan, you will have the extra money to pay for the registration of the vehicle and maybe even the insurance premiums that will come along with it.
- PRO – Since the loan is not specifically for the car, you will not need to show proof of full coverage insurance. That is not to say that it is a good idea to have it until you are finished paying it off, but it is not a requirement.
- CON – Personal loans are generally more challenging to get than a car loan, especially if you are trying to get one that does not require anything to be put up as collateral.
- CON – Whenever you get any kind of unsecured loan, the interest rates will be higher than usual. It will not be too bad if you have excellent credit, but the interest rates may eat you alive if you get authorized with only good credit.
- CON – The limits on how much money you can get is substantially less than a car loan. This means you will not have as much money to spend on a car unless you plan to throw in some extra cash for the purchase.
Final Thoughts
The final decision on personal loans vs. car loans will be for you to make. You should weigh the pros and cons of each one, evaluate your credit and finances, and see if you can find a lender that will work with you. Make sure you look around to find the best rates for the loan you want. The easiest way to do this is to go through a comparison platform, like iSelect, and compare the offers they send you from their partner sites. From there, pay for your new ride and go for a cruise.