Used Car Loan vs Personal Loan: Which is Better?

Having your own car, even if it’s a used one, can help you in many ways. However, when you don’t have enough money to fund the purchase then you are pretty much left with only two options which are a used car loan or a personal loan. So, the question is- which one is better?

The following factors shed light on the various differences between a used car loan and a personal loan to help you make the decision:

Loan Amount

In a used car loan, you get only up to 70% to 80% of the car’s valuation as per the lender’s assessment. So, if it costs Rs. 10 lakhs, then you can get only up to Rs. 8 lakh and the remaining Rs. 2 lakhs you have to put in on your own. Naturally, this is a huge financial burden.

With a personal loan, the borrowing amount isn’t limited by the valuation of a car. So, if you qualify, then you can get the full price of the car.

Interest Rate

The interest rate of a used car loan is usually high and starts from 13%. However, the same for a personal loan can be as affordable as 10.5%. This is because in a personal loan, factors like your credit score, income, repayment history, can greatly improve your interest rate.

Loan Approval Process

The personal loan approval process is pretty much straightforward and quick. In most cases, the funds are disbursed within 2-5 days post application submission. However, for a used car loan you have to wait longer as the lender will conduct the due diligence and assess the value of the car for the loan amount calculation. It’s especially tedious when you are buying the car from an unrecognized car dealer.

Observing the differences, it may seem that a personal loan is a winner here. However, that’s not always true. If your credit score is bad, then a used car loan is actually better because lenders don’t value the same that much when it comes to used car loans. However, for personal loans, they take credit score very seriously.

Image Source