Purchasing a car is a big financial step for many. Often, instead of paying the lumpsum amount, what individuals rather do is take a loan to cover the cost of the purchase and then repay the loan with their convenience. The two most common options for getting such finance so as to purchase a car are the personal loan and the car loan.
Personal Loan vs Car Loan
As the name suggests, a personal loan is taken to cover the expenses of varying nature of the borrower, be it paying for a medical emergency, funding a travel, financing education, etc. On the other hand, the car loan is specifically meant for the purchase of a vehicle. You can compare these two types of loan to ensure which will be best for you. In terms of procurement, both forms of loans are quite easily availed. With the help of a personal loan calculator by Standard Chartered, you can learn about how much EMI you will have to pay for the loan. The same goes for the car loan calculator.
For many, it will be a bit tricky to choose between the two forms of loan. Therefore, let us dwell a bit about both the car loan and the personal loan which will help you make a better decision.
Both the car loan and the personal loan have their pros and cons and can be selected only on the basis of what financial perspective an individual has. SOURCE: Todaykos.com
A personal loan is sought by an individual from an institution or a lender for any personal reasons such as for wedding, for planning a tour or for education. It is also an unsecured loan, which means that the borrower is under no obligation to keep collateral with the bank. Although this feature makes it a safe option for the borrower, it comes at the expense of a bit higher cost than secured loans.
Interest rates on unsecured personal loans are higher than that on a secured loan. The reason behind this is that the lender gets an assurance or security in the collateral asset you weighed in for the loan. Whereas, in case of the unsecured loan a lender initiates certain risk upon himself by providing you funds.
Apart from charging a high-interest rate, banks usually also demand a good credit score of the borrower in order to build trust for repayment. If your credit score is not convincing, obtaining a personal loan will be very difficult. In the alternate case, if your credit score is well-maintained, you will be favored by the lender and may even get some concession on the interest rates.
The great thing about a personal loan is that you get a flexible time frame to pay off the loan. The period ranges from 12 months to 60 months. Using the personal loan calculator, you can choose which tenure will be best for you. The thing which will not be possible to do with the car loan is that the allocated sum in a personal loan can be used for anything apart from the purchase of a car.
A car loan is a secured loan where the purchased vehicle serves as a collateral asset. This implies that in the scenario where you fail to make the payment for the car loan, the very car for which you took the loan will be seized by the lender. In other words, till the moment the loan is paid the vehicle technically remains the property of the lender.
The good thing to take away from this is that since the car loan is secured, the interest rates for the loan are not too high for the lender does not find himself in a risky situation. Also, the rate of interest is generally fixed throughout the payment tenure. So you can estimate your savings and plan the payment procedure accordingly.
Due to being a secured one, a car loan generally does not demand an excellent credit score of the borrower for getting the amount sanctioned. Anyone with an average credit score can opt for a car loan. But the catch is that the car will not be theirs till they make complete the payment of the loan. It will be like renting the car out of someone else. The car loan also offers both short and long payment tenure based on your convenience.
It also requires a small deposit to procure the loan. The most important thing to keep in mind is that unlike a personal loan, you will not be able to spend the sanctioned loan amount on anything other than the purchase of the vehicle.
The personal loan calculator and the car loan calculator will further help you choose the tenure of payment (the shorter the tenure more the EMI) for the personal loan and the car loan respectively. Based on your financial status and the conditions which suit you the best, the decision rests with you which loan to opt for.