Car Loan vs Personal Loan

Tuesday, July 24th, 2018

Different needs for money require different types of loans. Whether you need help with a personal loan or a car loan, look at some of the key differences and benefits of different loan options and weigh up what’s right for you.

Car loans

The most important rule about vehicle finance is that car loans must be used to by a car, because the finance offered to you is secured by that vehicle.

That means that lenders see car loans as a lower risk because they have the ability – and the right – to repossess the car if you default on your repayments.

Pros of a car loan:

Cons of a car loan:

Personal loans (unsecured)

When it comes to personal loans, one important advantage is the flexibility to use the money for anything you want – and that includes a car.

But be aware that the loan is not secured by whatever asset you do buy – and that makes the loan a greater risk for the lender.

Because of that higher risk, the interest rates on personal loans are usually higher than the rates on offer for a secured car loan.

Note:
Secured personal loans are also available, generally at a discounted rate but with establishment/application fees and/or mortgage or registration charges attached.

Pros of a personal loan:

Cons of a personal loan:

Which loan is right for you?

There is no definitive answer. It depends on your individual circumstances.

If you plan to apply for a loan to buy a car and your intention is to keep that car for a long time, generally speaking a car loan will be your smartest choice because it is the cheapest option.

There will be times, though, that a personal loan is more suitable for your needs. One example could be to cover the cost of a new car, plus have spare cash for some home renovations. If you do own a home, though, looking into refinancing your mortgage could also be another finance option available.

If you think you might sell the car before the lifetime of the loan has run its course, a personal loan could be a wise choice as it helps you avoid the risk of negative equity – something that happens if the car sale does not cover the full amount of the outstanding loan.

Whatever finance you do apply for, do your research and do a budget to ensure you can afford the ongoing repayments for the life of the loan. Simply by taking time to crunch your numbers, you can have a positive loan experience that helps you access the lifestyle you want, without the stress of making ends meet just to pay your debts.

To help you make the best decision, talk to your loan experts at Loans Specialists today on 03 8805 1800.


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