When you’re ready to purchase a new vehicle, you may be wondering what kind of car finance option will be best for you. Buying a new vehicle is a major expense. You may be wondering what the difference is between an auto loan and a personal loan and which option fits your current financial situation.
In short, a personal loan is an ideal borrowing option if you are paying for large, one-time expenses including consolidating all of your debt or starting costly home improvement projects. An auto loan will be a cheaper option in most cases because they are secured by the vehicle that you are purchasing.
Lending institutions such as banks or credit unions offer personal loans directly to borrowers in the form of a lump sum payment. This personal loan can be used for a car or any other purchase such as a wedding, vacation, or funding a craft, making it a more flexible borrowing option than a traditional car loan.
To get the best personal loans in terms of interest rates, consider securing the loan with something of value such as an automobile or a home. You will receive better interest rates but if you fail to repay the loan, the lender can seize the asset you secured the loan with to make up for their losses.
However, most borrowers get unsecured loans which are loans that are generated without any collateral which means the interest rates tend to be higher than secured loans.
If you use a personal loan for a car purchase, the lender will not place a lien on your car. This means that you will have your vehicle title under your name, which allows you to sell your car before you’ve paid off the loan.
A personal loan may be the best option if you don’t want to make a down payment on your vehicle and keep the extra money since there are no restrictions on how you spend your borrowed funds. Personal loans are also beneficial because they offer more flexibility in repayment options.
However, these come at the tradeoff of higher interest rates and tougher guidelines for eligibility. Borrowers will require good credit scores to qualify for a personal loan.
Keep reading to learn about getting an auto loan to help finance the purchase of a new vehicle.