The desire to buy a car does not always correlate with opportunities, but the abundance of credit organizations made it possible to purchase a car on credit. Let’s consider how you can do it and what are the benefits of personal loans for cars.
How do personal loans for cars work?
If you don’t have enough money to buy a car, you can apply for a personal loan. For a bank, this is a regular loan product at a standard rate without a specific purpose.
Personal loan is a broader category of financial services. It implies providing amounts necessary for the borrower to purchase a wide variety of goods and services. The first may include cars. All personal loans can be divided into 2 categories: targeted and non-targeted. It depends on belonging to one of them how freely the borrower will be able to dispose of the funds. Banks usually grant personal loans in cash.
How can I apply for a personal loan for car?
To obtain a personal loan, documents confirming the solvency of the potential borrower are required. In some cases, banks require even a coborrower. In addition, they take credit score very seriously. If a person already has outstanding debts or has made delays in payments, they may be denied even a relatively small amount.
How much does a car costs?
The average price of a new car is approximately $35,000.
What is the difference between a car loan and a personal loan
Loan interests. The main difference between a car loan and a personal one is the rate. If you compare a car loan with a personal loan without insurance, collateral and guarantors, the interest rate on a car loan is 3-10 percentage points lower – it depends on the bank. There is less risk for a bank in a car loan.
In 2019, the minimum rate on a car loan for a new car with car insurance without life insurance is about 9% per annum. With life insurance, some banks offer car loans for new cars at 3.5% per annum. The loan rate for used cars is from 10% when applying for car insurance and a down payment of 10-20%.
The maximum term of a car loan approximately coincides with the conditions of a personal loan – no more than 5-7 years.
Pledge of the vehicle. Car loan is a secured loan. The borrower leaves collateral for the loan to the bank – the purchased car. This is another reason for the bank to lower the rate.
Personal loan does not always require collateral, although the terms of the bank may become more beneficial when you provide a security.
The ability to dispose of the car. With a car loan, the vehicle is pledged. The borrower has the right to drive a car and trust driving to third parties. But you cannot sell a car.
With a personal loan, the bank cannot somehow impose restrictions upon the car.
Car insurance. For most secured loans, the bank requires a pledged item to be insured. For cars – this is a car insurance for the entire loan term.
The cost of car insurance for the first year, banks are usually allowed to include in the loan amount. The borrower pays insurance for the second and subsequent years on his/her own and provides the insurance policy to the bank. Usually the borrower must do it within 10 days after the expiration of the previous insurance contract. If you do not issue a policy or do not submit it to the bank on time, the loan rate may increase, or the bank will impose a fine – this is indicated in the loan agreement.
Sometimes banks allow not obtaining a car insurance policy, but the loan rate will increase by 3-5 percentage points.
Down payment. For a car loan, banks require a down payment – at least 10-20% of the cost of the car. This is most relevant for buying a used car on credit.
There is no down payment for a personal loan.
Lending programs from the manufacturer. Sometimes the manufacturer offers its own lending programs, for example a loan with residual value. This is a loan with a minimum monthly payment. Often, the rate is reduced due to additional services or insurance, in case of cancellation of which the rate approaches the market.
Such a loan is usually designed for 3 years. There is a down payment, and after the last payment there remains a debt of 30-50% of the car cost – hence the name of the loan. You can make the remaining amount in one installment or give the car by trade-in and immediately buy a new one.
The execution of a car loan agreement differs from a regular personal loan: for a car loan, you need to draw up a vehicle pledge agreement. And the way the money is transferred differs: with a car loan, the bank transfers the entire amount directly to the seller.
What are the benefits of using a personal loan for car?
When choosing between a car loan and a personal loan, a number of arguments testify in favor of the latter. What is a personal loan? This is the provision by the bank of borrowed funds to the borrower for any purpose. Funds are granted in cash or credited to the card.
You are completely free in your spending of these funds and you decide when and how you will use them. The main argument in favor of the personal loan is that you do not have to obtain expensive car insurance for the purchased car. You come to the car salon not for a loan, but in fact you buy a car with funds that have already been provided to you. At this point, you can save from 15 percent of the total cost of the vehicle you purchase. You are also not limited in the choice of car dealership.
The second important difference between a car loan and a personal loan is that you are not required to provide collateral. Personal loans are often granted without collateral, which means that you can save on the valuation of your property. In addition, even when such a pledge is nevertheless required, this means a significant reduction in the interest rate from the bank – since it gives out a loan with fewer risks for itself. In addition, if you think to take a car loan or a personal loan, keep in mind that when choosing a personal loan, you will be able to vary independently the repayment terms. If you take the bank selection process seriously, you can find the bank with the lowest interest at the longest repayment time, which will balance your payments.
With car loans, you will receive fixed conditions, depending on the dealership where you applied. Another important feature of personal loans, if you choose between a car loan or a personal loan, is the ability to choose a classic payment format, not annuity. With an annuity payment, you first pay interest to the bank, and then the loan itself. In the case of the classic repayment option, your payments are even from month to month. This is important if you are ready for early repayment of your loan.
To summarize, here are the advantages of buying a car with personal loan:
1. No down payment.
2. The car immediately becomes the property of the customer after the purchase, and the bank cannot prohibit its sale, exchange or gifting.
3. The borrower independently decides which bank to take a loan from and where to buy a car, and has the opportunity to choose the most favorable conditions.
4. You can save on car insurance and some other formalities.
5. Personal loan does not require collateral, although the terms of the bank may become more advantageous when providing collateral.Also, our website provides detailed information about new car loans and motorcycle loans. Webmoneyloans is always ready to help you.
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