Buying a car has been simple and convenient for many. A typical car buyer will turn to banks for auto loans. If auto loans don’t work for you, a personal loan can be another option. Personal loans can be used to buy almost anything, including a car. For some, choosing personal loans to purchase a car is a better option than an auto loan.
What To Consider
If you plan on buying a car using a personal loan, there are some key factors to consider before going that route.
Options
Make sure to shop around when applying for a personal loan. Terms and offers will vary from lender to lender, you shouldn’t settle for the first few options. Don’t stop looking until you find an offer with the lowest APR you qualify for.
Qualifications
When applying for personal loan, you should always keep your income and credit score in mind. If you have good credit score and high income, your chances of qualifying for the amount you need and lower interest rates are higher. If you have bad credit and lower income you can find yourself in a difficult situation. If you’re approved with a low credit score, you probably will have higher interest rates. In another scenario, your application can be denied and will affect your credit rating if you have multiple credit checks with multiple applications.
Affordability
Before considering a personal loan, lay out all your financial obligations. Be responsible with your spending to guarantee that your car purchase is within your budget.
Overall cost
Let’s be honest, buying a car can be an exciting moment for us. Don’t get carried away and just sign away. Before you take that personal loan, calculate the total cost you owe. Figure out how much you’ll be paying monthly and what the total amount will be paid at the end of the term. Doing so will help you find the most affordable option.
Pros And Cons
Making a final decision on using a personal to buy your car can be difficult. Being responsible and making the right financial choices is always important. Let’s weigh out the pros and cons to help decide what’s best for you.
What are the Pros for Using a Personal Loan to Buy a Car?
- Using a personal loan to buy a car can be a simple solution for most.
- The application process is simple and can be done on the phone, in person, or on the internet.
- You don’t have to use the full amount of the personal loan to buy the car. You can pay a portion of the car and use the remaining funds for other needs.
- You can qualify for lower interest rates if you have good to excellent credit.
- Personal loans typically come with fixed interest rates.
- Choosing the repayment term of a personal loan can vary from one to 7 years. You can use this to your advantage depending on your financial situation. Don’t forget that choosing a longer repayment term means longer accrued interest over time.
- If you decide to pay off the car with the personal loan, you will own the car. Compared to an auto loan, you won’t own the car until paid in full.
What are the Cons of Using a Personal Loan to Buy a Car?
- Auto loans require you to have full coverage on your car. Using a personal loan doesn’t require you to have full coverage making you responsible for all damages.
- Lenders advertise low rates but not everyone qualifies. If you have good to excellent credit scores it will increase your chances.
When Should You Use A Personal Loan To Buy A Car?
Buying a car with a personal loan should only be done if it makes sense. Auto loans exist for a reason and should be used if that option is best for you. There are some definite scenarios where personal loans are best.
- Private Sellers - Cars for purchase can be available in different platforms. Sellers can list their cars for sale through private parties like eBay or Craigslist. In this market, sellers typically choose to be paid in cash immediately instead of going through a long process. Having funds readily available will allow you to make that purchase.
- Full Coverage Insurance - Banks requires you to have full coverage when using an auto loan. Personal loans don’t require you to have full coverage on your vehicle which can save you money.
- Buying a Project Car - You’re less likely to be approved for an auto loan when purchasing a car that’s older or in bad condition. Personal loans will allow you to buy any car, especially the dream car you’ve always wanted to build.
When it comes to buying a car, using a personal loan can be your best option. Be responsible and evaluate your situation to see if it makes sense. Auto loans are still available and should be considered. Shop around and do your research between the personal loans and auto loans to compare the interest rates and terms that best fits you.
Resources:
1. https://www.moneyadviceservice.org.uk/en/articles/buying-a-car-through-a-personal-loan/
2. https://www.fool.com/the-ascent/personal-loans/articles/can-i-use-personal-loan-to-buy-a-car/
