Everyone wants to have a car. It is a necessity perhaps a great one. But one important question comes to mind when you plan to buy a vehicle: How much will it cost me? Is it expensive?
If the vehicle costs an upward of $19,000, you can go for a car loan if your savings or cash reserves are bleed dry. Question is, are you ready to go down this road?
Are you ready to get a loan to buy your dream car? This post aims to help you make a decision between taking a car loan and using your savings to buy a car of your choice.
Buying a car using a personal loan? Is this possible?
Yes, it is! Personal loans are given out to people without restrictions on how to spend the money. This provides convenience to buy what you need and want at any given time. To put it another way, these loans are flexible and convenient.
But this flexibility can work against you. How? It is easy to overspend on items you haven’t budgeted for. You can use loan money to finance pointless projects you never planned for initially. It’s hence advisable to take an auto loan to buy a car. It will restrict you from buying a car only. Nothing more.
Then again, this type of credit is expensive than an auto loan. And this is true for a number of reasons:
Auto loans are easier to apply and qualify for.
They come with low interest.
You won't have to pay extra loan fees.
But before you buy a vehicle, it is important to shop for one that exceeds your expectations and fits your needs. Go look for one while you wait for your auto loan to be processed. Generally, auto loans inquiries take a month. So, you'll have time to get a variety of car quotes and loans.
You'll be at a better place to negotiate at the position of strength with a dealer when you get pre-approved for an auto loan credit.
You are at an advantage when you visit a dealer’s lot and negotiate for a better price with a loan in hand. The dealer even gets motivated to close a sale lest they risk losing you as a customer. Remember, you will get a better car deal with a loan in hand.
Consider these factors when choosing between a personal and auto loan
1. Your credit rating
The higher your credit score, the easier it is to qualify for a loan. Your credit rating, therefore, matters a great deal, especially when applying for a personal loan. But not all lenders consider your score points but many surely will. Either way make sure your scores rating is higher than 580 at least.
Compared to loans taken by individuals, auto loans requirements are a bit lenient to the borrower. Why? Because your vehicle acts as security. A lender can repossess it anytime you default on the payment. So, you don't necessarily require a good credit rating to qualify for this loan. However, a car loan’s interest is a lot high compared to those other traditional loans.
2. Interest rates
Before you apply for a car loan, determine how much interest you want to pay. In general, auto loans come with low interests because your vehicle acts as collateral for the loan.
On the flip side, personal loans attract high interest. This is because these loans from services like https://www.realisticloans.com , require no collateral, but you can still provide collateral if you want to. The benefit of providing collateral is that it lowers interest rates by a good margin. You also attract a shorter repayment period. Think 3 years.
When you have a poor credit history, you can still get a vehicle of your choice (used or new) when you make an auto loan application. However, the interest will be higher – around 17.99%. But if you have good scores, you can easily find a good deal with your car dealer that lowers your interest rate to 1.45% or 4% sometimes.
3. Miscellaneous Fees
If you're not keen or aware enough, you can incur extra fees on the loan you take. For instance, an auto loan does not cost the borrower an origination fee. However, you can incur heavy repayment costs if a lender imposes prepayment penalties preventing a borrower from repaying a loan early.
The best way to minimize the cost of a loan is to discuss with the lender the options on the table. You can decide to take a rebate on the cost price of a vehicle or, alternatively, make sure the loan has low interest.
Remember, a rebate will save you more money. But chances are, your dealer will want you to consider low-interest rates more than anything else. Dealers don’t want you asking for a rebate because it means reduced loan amount. Make sure to consider an option that saves you money.
Conversely, a personal loan comes with a prepayment penalty and origination fee. But if you shop around, you're more likely to get these loans without the extra fees on top. Before you take an auto loan, make sure to ask about the annual percentage rate (APR) of the loan. That way you will know the ideal loan suited to meet your needs.
4. Term of loan
Before you apply for either of these two loans, ensure to compare loan terms. In general, an auto loan requires a period of 8 years to repay. While a personal loan takes a shorter period of time of repayment.
There is one thing you need to remember, though. An auto loan with a longer repayment term attracts low monthly interest rates. However, when these rates are stretched over the life of a loan, you end up paying more than you would had you applied for a different loan.
Understand the terms of each loan first before you can purchase that vehicle. This will help you determine whether you're paying more out of your money in monthly interests.
When you planning to buy a vehicle, it is important to consider how you're going to pay for it. Will you pay for it directly from your savings or will you take a loan? If you choose the latter, make sure to determine which loan is best fits your car buying needs.
Will you go for a personal loan or an auto loan? Determine which the best between the two is. Consider factors that’ll provide insights on your taking the right car loan. For instance, ensure you have a high credit score.
Consider the interest rates of each loan, too. Also, ascertain if each loan comes with extra fees and if the loan terms are lengthy or shorter. Does the loan require collateral? Read and understand everything loans before you take a loan to buy that dream car.
Published by Charlesa Gibson