Automotive

5 Key Differences Between Personal Loan vs Car Loan

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Ray is a sought after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.

 When it comes to personal loans vs. car loans, people often have questions. They may not be sure which is the better option for them or want more information on the differences between the two types of loans. In this article, we will discuss five key differences and how you can decide what loan type is best for your situation!

5 Key Differences Between Personal Loan vs. Car Loan:

1) Interest Rates: The interest rates on a car loan are typically lower than those of personal loans. This is because cars depreciate in value quickly, and lenders want them back, whereas no one will come knocking if you do not pay your credit card off within 30 days or more.

Car Loan Interest Rate: usually around %12-15% APR

Personal Loan Interest Rate: usually between %13-30+% APR (depending on the lender)

Interest rates depend on multiple factors such as credit score & amount of money borrowed.

Keep in mind these examples above only portray average APRs; yours could be higher or lower depending on the information you provide!

2) Loan Term: The term of a car loan is typically longer than that of personal loans. Personal loans are usually paid back within 36 months, whereas the average length on a new vehicle loan is 60-72 months!

Car Loan Terms: between %36-60+% APR depending on lender and credit score

Personal Loans terms: between %12-30+% APR (depending on the lender)!

3) Loan Amount: The amount of money you can borrow from a bank or credit union is typically less for personal loans than car loans. Personal loan limits are usually between $500-$35,000, whereas the average new vehicle purchase exceeds over %20,000!

Car Loan Limits: up to %100,000+ depending on your income and debt-to-income ratio

Personal Loans Limits: up to $35k (depending on the lender)

Loan amounts depend on multiple factors such as credit score & monthly expenses.

4) Collateral: When you have a car loan, the bank will possess your vehicle. However, with personal loans, the lender only has the right to seize any property pledged as collateral if it goes unpaid!

Car Loan Collateral: the vehicle itself

Personal Loans Collantal: anything used for security, including items such as savings accounts or other assets.

Personal Loans are usually better when it comes to borrowing small amounts because there are fewer barriers and restrictions compared to auto loans.

They also offer more flexible repayment terms, which can be helpful during times where money may be tight in your monthly budget. If you plan on buying a new car within 36 months, then an auto loan might make sense, but if not, a personal loan might be a better option!

Car Loans like Sunshine coast car loans usually have lower interest rates because the bank will want to get their money back when you sell your car. This is why it makes sense for banks to offer much lower interest rates on new cars in comparison with used cars since they know that after three years or so, you will probably trade in and take out a second loan at a higher rate of interest.

Personal loans are not tied to any collateral, meaning the lender has no guarantee to receive anything if you stop making payments which can make them very risky from an investment standpoint. In addition, personal loans often require borrowers to pass credit checks before being approved, which many people may find restrictive, especially those who do not have great credit histories.

5) Prepayment Penalties: Personal loans typically do not come with fees if you decide to pay off the loan early. Car lenders usually charge a fee that can be up to %15 of your total balance or $500, whichever is higher!

Car Loan Prepayment Penalty: up to %15 APR depending on lender and credit score.

Personal Loans are usually better when it comes to borrowing small amounts because there are fewer barriers and restrictions compared to auto loans.

When it comes to choosing between a personal loan or a car loan, each has its benefits and drawbacks depending on what you hope to accomplish. For example, if you plan on trading in for another vehicle within 36 months, then an auto loan might be best because there will likely be little change in interest rates from one year to the next; but if not, a personal loan may make more sense since they often come with lower interest rates and can help provide quick access to funds

 

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