Is a Car Loan Better Than a Personal Loan for Buying a Vehicle?
You might be looking to upgrade what you’re currently driving. If you’re in the market for a brand-new vehicle, there are several ways to secure the money that you’ll need in order to make your purchase. You can either take out a personal or auto loan, both of which can be used to buy a car or truck. Understanding the pros and cons of each can help you to make your decision on which one to choose. By securing the money that you need to buy your new method of transportation, you’re preventing you and your family from experiencing issues with debt.
The Ease of Qualifying
Both payment types can be used to purchase an automobile of any kind. However, a personal loan is money given to you that can be used in any way you choose. This gives you more wiggle room when it comes to finding a new vehicle. Unfortunately, borrowing money for personal reasons means that you’ll need good to excellent credit in order to qualify. Lenders want to know that applicants have the ability to pay back what is borrowed.
Auto loans, on the other hand, use the vehicle that is being purchased as collateral. For this reason, they are typically easier to secure. Buyers with bad and fair credit may be approved for the amount they need simply because the bank doesn’t see the transaction as a risk. If payment is not made, the automobile is repossessed and the bank receives the money due. If you have poor credit, your best bet is to go with lending specific to buying a car, since you’re more likely to be approved. Likewise, bad credit car loans can be less punitive, saving you from overspending in the long run with lower interest rates. If your line of credit is in either the good to excellent range, you might benefit from keeping your options open with a standard advance.
Lower Rates and On-the-Spot Buying
Borrowing money from a lender is all about the interest rate that you receive. Personal loans sometimes have higher rates than ones specific to buying vehicles. This is because the latter of the two options is considered secured lending. Lenders essentially protect themselves with unsecured borrowing. This means that you’ll pay more over time by taking out a personal loan as opposed to a standard auto option. When buying a vehicle, the salesman often works with local lenders and banks to get the contract approved on-the-spot. This prevents you from having to do your own homework trying to find the right company and rate.
Other Points to Consider
Personal loans often have longer repayment periods than that of automobile lenders. This means that you can take a longer amount of time to pay off the vehicle, which will lower the payments each month. The time frame for repayment specific to cars is normally shorter and because you have a debt, you’ll need to carry full coverage insurance. This means that your monthly payments will be more expensive and costly for you than if you were to simply borrow money from a lender that you can do anything you want with. Both types have their benefits and disadvantages, and fully understanding what to expect from either of them can help to make your decision.
A Recommendation
If you are a Canadian reader perusing this article, we recommend smarter.loans. They’re a nice little loan directory operated out of Toronto. Smarter.loans is the kind of great little site you’ll find when you google keywords like “best Toronto loan marketplace” or “best car loan rates Canada“. The bottom line, if you’re north of the border, check them out.
