A car – an essential commodity for many and status symbol for others – has become a critical part of our lives now. Enabling transport from point A to point B at any given time, a car is now a staple of all sections of the Indian populace.
When you purchase a car, you buy the convenience, the comfort, the ease and make a big investment. When you don’t have enough money in your bank account to buy a car, you go for car loans. The less widely known option is taking out a personal loan.
So when buying a car, should you go for a car loan or a personal loan? Here are factors to consider:
Car Loan v/s Personal Loan
Car loans are actually a variation on personal loans, structured to factor in the depreciation of a car’s value over time. Car loans often require you to make a sizable down payment early into the term – the bigger your deposit, the lower your succeeding EMI payments.
Personal loans, meanwhile, can be either secured or unsecured: the former is backed by the assets you already own for the lender’s security, while the latter is determined solely on the basis of your credit status.
In either case, you would need to pay attention to vital details like the cost of your monthly payments (EMI), interest rates, and payment terms.
Payment terms are also an important factor: you may be tempted to go for a longer time period so you would pay lower monthly fees, but a shorter term means you pay less piled-up interest over time. Car loans allow you to pay off your principal in a shorter term as compared to personal loans.
Interest rates are calculated based on the car’s list price and your current financial situation. Personal loans tend to have higher interest rates than car loans, thus, giving car loans an edge over personal loans when it comes to interest.
If you choose to apply for a personal loan, lenders are likely to look into your credit score rating. This is their assurance that you will have the ability to make your payments on time. Should you have a less-than-ideal credit score, you will have better chances of getting a car loan than you would a personal loan.
To sum it up, in most situations, a car loan is preferable to a personal loan when buying a car. This is true for a few simple reasons:
1. It is easier to qualify for a car loan.
2. Your interest rate will likely be lower.
3. You’re less likely to have to pay other loan fees.
In other words, it’s typically easier and cheaper to get a car loan than a personal loan. And now, with captive finance institutions like Volkswagen Financial Services offering finance and mobility solutions for their group cars, acquiring car finance has become a lot easier than before.