When you’re planning on buying a car you might face the question of which type of loan should you get – a car loan or a personal one. Let’s dive into the comparison between the two, so you’ll have a better understanding of which one is better for your situation and will be able to make an informed decision.
What to Ask Yourself Before Getting a Loan
To effectively get started on deciding which type of loan you need, try to answer as best as you can the following questions:
- Is your financial situation stable? If it is – great, go ahead and get a car loan. If it’s not – probably a personal loan will be a better choice, because in this case even if you default you won’t lose your vehicle to repossession.
- Have you set your mind on a particular car? Knowing what you want serves as leverage in negotiations with a lender, and you can also get a pre-approval on the model you want, so you know the amount of a loan more precisely and can plan accordingly.
- Will you be buying a new or a used vehicle? The latter is cheaper, but you might not find a suitable car loan for it, therefore, you will have to take out a personal one instead.
- How’s your credit history doing? Bad credit car loans are a better deal than personal ones, as the vehicle serves as collateral, but in this case, you’re risking losing a car.
- Will you be purchasing extras for your new car? Most car loan providers wouldn’t let you add the cost for these onto the loan, while a $5,600 personal loan can cover them.
If you’ve clear on the above questions, but still cannot decide what loan suits you better, try comparing the options side by side. Calculate carefully, to see the value of each loan.
Comparing a Personal Loan and a Car Loan
Let’s clear this out of the way, so the comparison would be more effective.
- Personal loans are more accessible, have more flexible terms and cover a more wide array of expenses that car loans, have a shorter application period, and don’t require collateral. However, because they are unsecured, the interest rates can be much higher than with personal car loans.
- Car loans, which are specifically tailored to cover the vehicle-related expenses like the cost of the car, licensing and registration, have lower interest rates, but a longer application process, are more restrictive in terms of funds’ usage and require to put your car as collateral, which sometimes can lead to the risk.
Finding the Type of Loan That Is Right for You
In order to clear your head and pick a loan that will work best for your situation, follow the below guide, that will take you through the most important steps on the way.
- Make a list of loans from different lenders that you can qualify for. For each loan put down the term and the APR, as these are what makes a difference.
- Calculate an estimated interest rate and total cost of your loan.
- Check out other features like repayment fees, add-ons, and discounts.
- Seek what type of loan costs less and covers more of your soon-to-be expenses. Set your mind on only a couple of potential lenders that can provide the chosen type.
- Apply for a loan and see whether you’re approved or not. Many providers will let you get a pre-approval before applying in full, so you can check the rates.
If you have bad credit, check out Bad Credit Loans in Connecticut for more info.
Choosing a type of loan to get while buying a new car is tough, as this kind of financial decision impacts a person’s life for many years. Don’t rush, budget wisely, calculate twice, and do your research about both personal and new car loans so you’ll make the right call at the end.