Difference between a car loan and a personal loan

The personal loan and car loan are the two most common financing options. Many consumers consider taking these before making a big purchase such as a car, home renovation costs, travel costs, etc. Many of us might have taken both the type of loans for financing some of our costly items.

Some people find themselves confused between a personal loan and car finance. But they must know that both these financing options are very different from each other. Here we will discuss both so that you are clear about the difference between them.

Personal Loan

Such loans are taken for any purpose. There are absolutely no bindings when it comes to personal loans, unlike the car loans that can be taken only for buying cars. Here are the benefits and downsides of personal loans.

Benefits of personal loan:

•    There are no binding or restrictions on using the amount you have got against your loan, in the case of personal loans. You can use the loan amount to buy anything for any purpose, no questions.

•    You don’t need to disclose to the bank, what are you buying.

•    It offers flexibility structure of paying back the loan amount. 

Downsides of personal loan:

There are several downsides or cons of the personal loan too, which you must be aware of. They are:

•    The interest rate is relatively high, unlike the secured loan product such as car loan, home loan, or bike loan.

•    Since a personal loan is entirely unsecured, personal loans have a strict lending criterion.

•    If you do not have a good credit score, you may not get the personal loan quickly.

Car Loans

Coming to the car loan, as the name says, it is the loan given by the bank to buy a car. It is a more secure loan and must be taken only in the cases when you are going to buy a car.

Benefits of car loan:

The benefits to apply for car loan are many. Some are listed below:

•    Car loans have a low rate of interest.

•    It is easy to get one.

•    It is a secured loan and you do not need a significant credit score to be eligible to get the car loan.

•    There is hardly any security needed to get the car loan. The vehicle itself is the biggest security against the loan.

Downsides

Though car loan is one of the best provisions offered by the bank, there might be a few downsides:

•    A down-payment is necessary to get the car loan.

•    You will receive the complete ownership of your car only when you pay all the outstanding loan amount to the bank. Now, before you apply for online car loans, you can compare these loan finance options to know what suits your requirements.