The Term Loan is the mother of the different types of loans we know about. But let’s talk about Personal and Auto loans.
Personal loans can be used to pay for just about anything; although you can use a personal loan to purchase a new or used car, an auto loan is most likely your cheapest and desired option. On the other hand, auto loans are strictly explicitly used to finance a new or used car purchase.
When choosing between a personal loan and an auto loan, consider these variables;
- The difference between taking a personal loan and an auto loan is the interest rates. Personal loans usually have higher interest rates, while auto loans are low, although with your car as collateral.
- Personal loans involve risk but typically do not require specific collateral that the lender can repossess. With an auto loan, the purchased car covers the money that you borrow. If you fail to make loan payments, the lender can sometimes repossess your car.
- Before moving forward with a personal or auto loan, compare rates, terms, and loan features. Calculate the monthly payments on a personal or auto loan to help you determine what you can afford.
- The process of applying for a personal loan is often different from applying for an auto loan. Personal loans are typically easier to get because lenders primarily look at your income, credit score, and credit history. It would be best if you found a lender willing to offer a loan secured by the specific vehicle you purchase to get an auto loan. It can be complex in some instances, such as if you choose to buy a used car.
- Read your personal or auto loan contract very carefully before accepting the offer to be sure you understand the terms and conditions attached.
Personal loans are best for borrowers who have a steady income to make repayments every month or as the loan terms dictate. In comparison, Auto loans are the cheapest way for anyone to finance a new or used vehicle. And with the presence of so many loan companies nowadays, some lenders and dealerships may offer financing without collecting a down payment, but you’ll get a lower rate on your loan if you make one (down payment).
If there is one thing to pocket about these loans, it has to be weighing your options and making comparisons as much as you can. Know your needs and wants, and that should help determine the type of loan you should be taking with any agency or company.
Now, before taking that loan, ask yourself the following question:
- Will I survive without this loan?
- Are there other options to explore asides from taking a loan?
- What plan do I have to repay this loan?
Answer these questions, and you should be just about acceptable.
Don’t forget even the RICH take loans, but with strategy and lots of decision making.