Knowing the difference between personal loans and car loans: Which is cheaper?

There are cases when something of value cannot be easily purchased due to some financial restraints.  In this state of the economy, no matter how much you put in, income doesn’t come easy as it should be. If you are in the market for a significant lifestyle purchase, for example, a brand new laptop, a digital camera, or even a car, somehow, the easy answer might be to avail of a loan to aid its purchase.

The thing is, financial institutions have a wide array of loan products and services that will confuse people for what it is intended for. Some loans like housing loans are suited best for people that would like to invest in real estate or houses wherein the financial payments are flexible, secured with collateral and longer regarding duration. Also, you have personal loans that are quick to avail, with minimal requirements to comply but stacks on interest rates and shorter in length.

Now, if you are planning to purchase a car, you might want to consider the option of availing an Auto Loan. These loans are created for the intention of providing financial assistance for a vehicle. To help you with your decision of choosing between, here is a general breakdown of what personal loan and car/auto loan are:

Personal Loan

Concerning payment, some personal loans require payment of a lump-sum at the end of the loan duration or fixed monthly, bi-monthly, weekly or yearly payments. Financial institutions don’t usually need you to identify what the purpose of the loan is. It is up to the borrower how to spend or what to spend it on. Personal loans can either be secured or unsecured. If you opt for a secured one, you pledge any asset of value like a piece of jewelry or a house if defaults occur. For you to avail of a personal loan, an excellent credit score is needed and prepare for a drowning list of requirements to comply. At the top of that, interest rates are more expensive than any other loan. The benefits of availing this loan are that you have the right to whatever you will do with the borrowed money and repayment schedule is flexible. The downsides are higher interest rates, more difficult to qualify and an excellent credit score is needed.

Auto Loan

On the other hand, it is a secured loan, which means that it is likely that your car will be the asset to back the loan. If any form of defaults happens, the financing institution can seize it. Repayment terms are made in installments that can last up to 15-20 years. Interest rates are comparatively lower than a personal loan and are fixed. The benefits of a car loan are that its interests are more economical than a personal loan. Qualifications are much easier than a personal one, and most of the time, it’s the most viable option for the purchase of a car. However, the ownership of the vehicle remains to the financial institution or lender until the loan is fully paid and an initial down-payment of at least 20-30% of the car’s amount is required.

If you are still confused as to what loan will be the most advantageous one for your financial health, take the time to go to various financial institutions and ask about each loan with them. They can give you a realistic summary of your cash flows and how a loan would affect it. This will ultimately guide you to decide what the best is for you.