Taking out finance to buy a car is more common than you may think. When purchasing vehicles, you’ll find that the two most applied forms of financing are personal loans and car loans. So that begs the question, which is best for you? When it comes to a personal loan vs car loan there are a few factors you need to consider. Although they are similar in some aspects, personal loans and car loans are still different forms of finance.
In this blog, we’ll help you understand the main differences between a personal loan vs car loan and which option may be best for you!
The exact terms of each will depend on who your lender is and the product they’ve offered you. However, here are some key features you would expect to find:
This type of loan is borrowed for the sole purpose of financing only the selling cost of the car and related expenses such as car registration or licensing. Most car loans are also secured loans, meaning that the car you’re financing is used as security against the loan. What this means is if you fail to make your payments, your lender can repossess your car to make up for the owed amount. Here are some other features associated with car loans that you should know about:
Unlike car loans, personal loans are considered a more flexible type of finance option. You have the option between choosing a secured personal loan or unsecured. It’s best to shop around and compare different quotes to find the personal loan with the terms and conditions that suit you and your needs the best. Here are some additional factors to consider when taking out a personal loan.
To summarise, think of car loans as money that’s borrowed for a specific purpose. Meanwhile, a personal loan has more flexibility and could be used for a variety of purposes.
Have you considered a balloon payment? As mentioned above, some dealerships will finance your car using a balloon payment plan. A balloon payment is a large sum paid at the end of your loan term after you’ve made a number of small payments over a certain term. Balloon payments are considered both beneficial and risky.
They can be beneficial in the sense that you end up saving more money on interest. Yet they can also be risky as they can be hard to budget for. Ultimately, it all depends on your specific financial and personal circumstances.
We can’t give you a definite answer on whether a personal loan or car loan is better. It mostly depends on your personal and financial situation. That said, if you’re struggling to make a call, here’s a rough summary on each:
If you’re weighing up a personal loan vs car loan, the best thing you could do before finalising your decision is research. Comparing different loans, lenders and loan terms can help you determine which option is best for you and your budget. Using a loan calculator can help give you a rough estimate of what your weekly or monthly repayments will look like. This can also help you get a clearer idea of what value for money you’re getting with every type of loan.
To help you with your research, here are a few things you should ask yourself:
If you’re expecting a change in your financial position in the near future, then a personal loan could be your best choice. An unsecured personal loan tends to carry less risk if you see yourself having an uncertain financial future. Additionally, if you decide on variable interest rates, you’ll find yourself taking advantage of additional payments without the penalty.
If you seek pre-approval, then that only exists with car loans. What this means is if you want to compare and shop around for different cars knowing exactly what your budget is, then you may want to go for a car loan.
Buying a used car can help you to save money and may also get you a good deal on value. However, depending on the details of the vehicle, you may not qualify for a car loan as they are specific on how old the car should be. If that’s the case, then maybe a personal loan is your better option. For example, some lenders will require the car you’re buying to be less than five or two years old to approve you for the car loan. Personal loans, on the other hand, don’t have such restrictions.
Although you’ll find some bad credit car loans, you may have more options with bad credit personal loans. Read more!
Modifying features on your car can be a costly decision. Regardless of whether it’s a new paint job or changing the interior of your car to leather, many car loan lenders won’t allow those additional charges to be added onto your car loan. However, with a personal loan, you may use the borrowed funds for many purposes. So, you could add any car modification costs onto the personal loan amount.
Here are some additional questions you may be thinking about when it comes to choosing between a personal loan vs car loan.
You can take out a used car loan, however, they usually charge a higher interest rate. This interest rate is a cost that compensates for the decreased value of the car over time. Additionally, many lenders will still have certain restrictions on the age of the car.
No, you won’t need to provide details of the car when taking out a personal loan. Although it’s standard practice for a lender to ask what the purpose is behind taking out a loan, they won’t ask for further specific details on the car.
At Jacaranda we can provide both personal loans and car loans to suit a range of needs. Our personal loans range from $300 to $10,000, while our car loans are from $5,000 to $35,000. Unfortunately, we can’t offer our personal loans to cover the cost of a car purchase. However, our car financing options can still offer the fast outcomes and flexibility you may be searching for.
So, if you’re weighing up a personal loan vs car loan, why not apply with us? It’s free to do so and we could have an answer for you in no time! Scroll up now to apply.
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Young entrepreneur Daniel Wessels is the CEO and Founder of Jacaranda Finance. Although only in his early thirties, Wessels’ determination and adaptability has led him to successfully pioneer a range of other enterprises both here and abroad.Read More
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