Given the state of public transportation and last-mile connection in Indian villages and cities, a car has become a bare minimum requirement for a family. Furthermore, in our culture owning a car is seen as a sign of status. No matter your motivation for purchasing a car—new or used—finance in the form of loans is a necessity for many people.
We recognize that you may be unsure about choosing between a personal loan and a car loan given the variety of loans that are available.
Let's have a look into which loan you should prefer -
Loan Amount and Interest Rate Provided: When opposed to car loans, personal loans typically have substantially higher interest rates. Your credit rating and credit score play a major role in determining the total amount of interest you will be required to pay for the personal loan or the car loan.
If you have strong credit, it is normally advised to choose a personal loan, and if you have bad credit, to choose a car loan. Since a car loan typically only covers 80% of the vehicle's entire cost, the remaining 20% may become a significant sum if the automobile's price is greater. On the other hand, a personal loan will give you the full 100% of the money required to buy the car. If you have strong credit, you can acquire a personal loan to pay for the entire cost of the car at an affordable interest rate.
Higher Car Loans are Available: Due to the unsecured nature of personal loans, there may be limits on the maximum amount that may be borrowed. Nevertheless, the price of an automobile might range from a few lakhs to a few crores, depending on the model you want to purchase. Car loans are not amount-restricted, so they may be helpful, particularly if you're considering a high-value vehicle.
Duration of the Loan: Both loan kinds have quite distinct terms in terms of tenure. A personal loan can have a term of one to five years, whereas a car loan can have a term of three to eight years. Both of these options have benefits and drawbacks. You will pay less interest for a loan that is available if the loan term is shorter. However, the near term means that a substantially higher EMI will be required.
Everyone wants to finish repaying the loan as soon as feasible. You can get a personal loan with a shorter term if you have the ability to make significant EMI payments. On the other side, car loans have a lower interest rate and a longer term. The amount of interest you will have to pay overall is the only factor to take into account when choosing a longer term.
Control over the Car: The major distinction between a personal loan and a car loan if you choose to use one to purchase a car is who owns the car. Since car loans are secured loans, ownership of the vehicle will only be given to you after the loan's term is up. When you choose a personal loan, you will gain ownership of the vehicle as soon as you make the purchase. This makes personal loans an intriguing alternative to think about, as does the absence of a down payment.
Consider elements including loan length, principal amount, EMI amount, and the amount of interest you desire to pay over the course of the loan when deciding whether to use a personal loan or a car loan to finance the purchase of a car. If you want to pay as little interest as possible during the loan term, personal loans might be an excellent option. If you want to spread out the repayment of your loan amount over a longer length of time and can't afford a hefty EMI payment each month, car loans may be a smart option.
Consider factors like loan tenure, principal amount, EMI amount, and the amount of interest you wish to pay over the course of the loan when deciding whether to use a personal loan or a car loan to finance your purchase of a car. If you want to pay as little interest as possible during the loan term, personal loans might be a good option. If you want to spread out the repayment of your loan amount over a longer period of time and can't afford a high EMI payment each month, car loans may be a good option. Before making a choice, research the various banks and non-banking financial institutions and weigh your options.