For the vast majority of individuals who are hoping to purchase a new vehicle, the option of financial assistance in the form of either a car loan or a personal loan is usually necessary. While there are certain qualifying standards required to obtain financial assistance from lenders, such as a good credit score and a stable form of income, you may be wondering which of these options would be the most ideal solution for your personal financial situation. Essentially, a personal loan can be used for a variety of different reasons while a car loan is intended strictly for the purchase of a vehicle. However, there are varying pros and cons associated with each option.
Understanding A Car Loan
In most cases, a car loan is a secured form of financial assistance where the vehicle purchased will serve as a form of collateral against the loan amount. This means that if you are at any point unable to repay the monthly installment amount, the lender reserves the right to seize the vehicle. You will be required to repay the loan amount in fixed monthly installments and the lender may hold ownership of the vehicle until you have paid the very last installment of the loan. You can visit moneyexpert.com to compare the best car loan deals available if the conditions of this type of loan are suitable for you.
Most car loans can be paid over as long as 60 months, although, you can opt for a shorter repayment length which would likely insist on a lower interest rate. Generally, individuals are able to obtain a car loan with a lower credit score, unlike a personal loan which would require a good credit score. Furthermore, the relevant interest rate charged may also be significantly lower when compared to the relevant interest rates on a personal loan as a car loan is secured. A secured loan is considered less of a risk to lenders. While the benefits of lower interest rates and a higher chance of approval are great, the only relevant downfall of this option may be the fact that you would not hold ownership of the car until the loan amount has been paid off.
Understanding A Personal Loan
A personal loan refers to a lender, such as a bank, borrowing a lump sum that may be used at the borrower’s discretion. This type of loan is considered unsecured as there is no form of collateral which the lender may seize in the event that the borrow defaults on repayments. For this reason, a personal loan is purely dependant on significantly strict qualifying criteria. Even though a personal loan would allow you to ownership of the vehicle you have purchased, the interest rates are generally much higher and individuals with lower credit scores will need to consider methods that will help increase the chances of getting a personal loan.
Terms Of Financial Assistance
Regardless of how thoroughly a lender explains the terms and conditions associated with the loan you have opted for, the importance of understanding the loan agreement is extremely crucial. To ensure that you are fully aware of your financial responsibility to repay the relevant amount, you should always read through the contract properly and take care in understanding your obligations.