Car Loans vs Personal Loans

The holiday period is normally a time when people spend more hours at home and some start looking around for a new car. If you’re looking at a loan to purchase a new or second-hand car, it’s important to consider the best way to finance it. The most common ways to buy a car is with cash, or with the assistance of a loan. Which will likely either be a car loan or a personal loan.
 
Personal Loan

Traditionally, personal loans have been used for things like weddings or holidays. However, it is possible to use the funds to purchase a car.
 
The great thing about using a personal loan to buy a car is that it can be faster to obtain. You then have the flexibility to spend the funds from the personal loan as you see fit. However, this might cost you in the long run. A personal loan is typically, unsecured debt. This means that there is nothing backing the loan other than your ability to pay it off with your income.
 
From a lender’s perspective, this is a far riskier type of loan, as there is no collateral in place, in the event that you lose your job and are unable to make your regular repayments. Because of the additional risk, a personal loan will normally attract a higher interest rate which will then mean you’re going to pay more in interest over the life of the loan.
 
Given that a personal loan is more flexible, you can use the balance for things aside from a car, however, this results in more debt that you’ll need to pay off.
 
Car Loan

When you take out a car loan it will typically be secured by the car itself. This gives the lender a degree of certainty around the loan.
 
Because of this, you will likely be paying a lower interest rate than you would with a personal loan. However, the process might take a little longer as there will likely be some requirements from the lender around what type of car you’re able to purchase.
 
The other consideration with a car loan is where you get it from. These days many people look to get finance through the dealer. While this might be the easiest option, it will likely not be the best deal to suit your needs.
 
Dealer finance is another way a dealership can increase their profits and they are not working with multiple lenders to find the best deal. If you are looking to take out a car loan, it’s best to speak with a broker in advance and gain a pre-approval.
 
You’ll then know that you’re getting the best option available to you and also what your budget is going to be before you start the search for a new car.
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