Car loans and Personal loans are two most common financing options. You may be considering either when you are purchasing your next car. But which is the best?
In terms of applying, both can be easy to apply for and receive if you have a good credit file. You will want to ensure your credit history is in good condition before applying for either loan type. You can choose to complete an online application for a personal loan, and you can speak to your car dealership about a car loan. Many are advertised around the car garage when you go and view the cars. However, they are different forms of financing and care should be taken to choose one which best suits you.
Personal Loan
A personal loan can be used for many different reasons, but a car loan is obviously only for the car and nothing else. In this way, a personal loan provides more flexibility. You may be able to use some of the money for the car, and the remainder for other things, like bills, holidays or home improvements, if that’s what you need.
According to Investopedia, a personal loan is unsecured, which can sometimes mean higher interest rates, so it is important to shop around. The loan amount can also vary in value. They are usually paid back within a few months. Some personal loan companies only offer a month or two to repay the loan, which might not be feasible for you when you are trying to purchase a high-value item like a car. However, more and more personal loan companies are extending their repayment periods.
For instance, Wonga South Africa offer personal loans for up to 6 months, with a total loan amount of R4000 for first-time customers. This would be suitable if you need to buy a vehicle and offers you more flexibility. Longer loan terms like this will lower your monthly repayment amount, but of course, the consequence of this is that you will pay more interest over the term of that loan. You need to take this into consideration when applying for the personal loan.
Car Finance
In contrast, a car loan is secured against the vehicle you intend to purchase. This essentially means that the vehicle serves as collateral for the loan. If you are unable to meet one of your repayments, the lender can seize the car.
With a car loan, the car is in your possession but is owned by the car dealership until you finish repaying the loan. This can be off-putting for some people. However, it can be deemed lower risk, so interest rates can be favorable. The loan is paid off in fixed installments over the period of the car loan. Interest rates are also generally fixed at 36, 48 or 60 months. You usually don’t get a choice of many deals from the car dealership – they will only offer a few options.
People sometimes find the convenience of the car loan favorable. You can sometimes get it on the spot – however, an upfront deposit is generally required to secure the loan. You will need to have some money tucked away in savings.
So, the choice is up to you. Both options have their advantages and disadvantages. Wonga suggests asking yourself a few questions when applying for any kind of finance. Do you need it? What will it cost me? What will it cost me overall including with interest? We think you should also consider whether your credit is in good enough shape before applying for either option.
