FindItMore | Having a car is a necessary product for some people and a class image for others. With the rise in per capita income in India over the period of time, there has been a rise in the money spent on a car. If you too are planning to buy a new car and you don’t have the required funds for the same, then you can avail either a car loan or a personal loan. If you decide to take a car loan, the maximum funding you can avail is up to 80% of the on-road price. You will have to pay the remaining 20% as a down payment. In case you don’t have the required 20%, you can avail a personal loan instead of a car loan. Now let’s discuss if taking a personal loan for buying a car is good for you or not:
Collateral: To get a personal loan, you require no collateral. If you are taking a car loan then your car acts as a collateral, a car loan is a secured loan. In case you default on your loan repayment, the lender will seize your car to recover loan outstanding. So, if you wish to take an unsecured loan then you can take a personal loan.
Loan Amount: You can avail a personal loan for an amount of up to Rs. 50 Lakhs, whereas in case of car loan you get a maximum loan amount of 80% of your car value and remaining margin of 20% is to be paid as down payment. If you want to avail a loan amount equivalent to your car value, then availing a personal loan is a better option.
Interest Rate: As the personal loan is an unsecured loan, lenders face higher risk in advancing it. So, the rate of interest on it is higher in comparison to other secured loans. A car loan in comparison to it comes at a lower interest rate, as in case of default, lenders can seize your car to recover their dues. Interest rate varies directly with lenders risk involved. Higher the lender’s risk, higher will be interest rate.
Credit Score: Lenders assess your repayment capacity based on your credit score. A good credit score implies lesser chances of you defaulting on your loan repayment. Lenders face higher risk in advancing an unsecured loan, for availing it a good credit score is required. If your credit score is good then you can avail a personal loan or else you can apply for a car loan.
Tenure: Personal loan can be availed for a maximum tenure of up to 5 years, whereas car loan is available for a tenure of up to 8 years. Longer tenure means affordable EMIs and higher interest payment, whereas shorter tenure means higher EMI and less interest paid. Taking a personal loan for the purchase of a car is better if you don’t wish to pay high interest spanning over a longer tenure.
Purpose: A car loan is to be utilized for the purchase of a car only whereas a personal loan can be utilized for any personal purpose, there is no strict supervision over the utilization of loan amount. So, taking a personal loan is better as there is flexibility to use loan amount as per your will.
From the above discussion, it emerges that availing a personal for the purchase of a car is a better option if you don’t wish to keep your car as collateral and you want to wind up your loan repayment in shorter tenure. Also, if you have you want to avail entire car value as loan amount and your CIBIL score is good, then a personal loan is the best option for you. You can apply for a personal loan through different online aggregators.