Can I Use a Personal Loan to Purchase a Car?
Personal loans can be used for many different purposes. But one common question people have is if they can use a personal loan for car purchases. Cars are no longer considered a luxury for most people and are more of a necessity in our lives. But buying a car can impact your finances, especially if you are using money from your savings. For this reason, people opt for personal loans. There are both pros and cons of taking a personal loan for car purchases, which are discussed below.
Personal Loans and Car Loans
To make things simpler to understand, people can buy a car with a personal loan even though personal loans are not designed specifically for buying a car. Before applying for a personal loan for car purchases, consider these six factors:
1. Collateral
Collateral is an important aspect to consider. A car loan takes the car as collateral, whereas a personal loan for a car does not have any collateral. So if you are not able to pay your loan instalments on time, the bank can seize your car if you take a car loan. But if you take a personal loan for a car and are unable to pay your EMIs, many additional charges will keep getting added to the amount of money you will have to repay and your credit score will be affected.
2. Costs
When taking a personal loan for a car, the loan amount will cover the entire cost of the car. On the other hand, when it comes to a car loan, only 80% of the car’s cost will be paid by the bank and the other 20% will be paid by the customer.
3. Interest Rate
The interest rate of personal loans is higher compared to the interest rate of car loans. However, interest rates may sometimes fluctuate.
4. Credit Score
Another important factor to consider is your credit score. If you have a good credit score, then a personal loan for a car is a good option since the interest rate is lower. On the other hand, if you do not have a good credit score, then a car loan is an attractive option.
5. Purpose
The purpose of the loan must be clear. If you are looking for a loan to buy a car, then you can consider taking a car loan. But, if you want to buy extra accessories with that car, then you can apply for a personal loan for car-related expenses.
6. Application and Approval
The process of applying for both of these loans is simple and similar. But, applying for a personal loan may take less time since it is an unsecured loan and with the online application process, can be granted within the same day of your application.
When To Take a Personal Loan Instead of a Car Loan
These are some situations when you can take a personal loan for a car purchase:
1. If you are trying to purchase a car from a private party
If you are trying to get a car from a private party, then you can take a personal loan rather than a car loan. A private party who has listed their used car on different websites will prefer to get their payments in the form of cash or a cheque issued by the buyer. This is only possible if the buyer has the money from a personal loan. On the other hand, car loans are more complicated when purchasing from an individual.
2. If you are trying to save some money on insurance
When you take a car loan, the bank will have the car as collateral and will want the car to be insured. The bank will give full compulsory coverage and comprehensive insurance to the car, which might cost a lot of money. On the other hand, this is not the case when you take a personal loan for a car. With a personal loan, you can choose the type of insurance you want rather than opting for full coverage insurance, which will ultimately help you save more money.
3. If you are trying to buy a car that is highly damaged
If you are going to buy a car that has been damaged to such an extent that it cannot be used without proper repair, then it is unlikely that a bank will issue a car loan for this purchase. In this case, a personal loan is preferred over a car loan since you can take a personal loan for any purpose and are not required to disclose to the bank the reason for taking the loan. You will, however, be required to prove your repayment ability.
Personal Loan Eligibility, Documents and Application
If you are between the ages of 21 and 68, have an income from a salary or business, have been employed for 1 to 3 years and have a CIBIL score of 750 or higher and meet other requirements, you are eligible to apply for a personal loan.
Once you have decided to take a personal loan for a car, either visit your nearest bank branch or go to the bank’s website to apply for a loan. You will be required to submit identity proof documents and address proof documents, and provide details on your bank account and other requested information. If your personal loan is approved, the money can be transferred to your bank account within a few minutes or hours.
Conclusion
When you are planning to purchase a car, you can either consider taking a car loan or a personal loan. There are benefits and disadvantages to both so it is important to carefully consider your financial situation and repayment abilities before making a decision. If you prefer to take an unsecured loan and use the money from a personal loan to finance the purchase of your car plus other related expenses, then a personal loan for a car is a good option for you. Applying for a personal loan is a simple process that is available as an online option as well. For more information, visit Piramal Finance for more articles like this one and further financial guidance and advice!