You need a car loan to purchase a car, right? The answer is – not necessarily. If it suits you, you can also opt for a personal loan to purchase a car. Either option has its merits and demerits; let us have a look at some of them.
A car loan works better if you’re buying a high-value new car. An auto loan is a secured loan, so the amount sanctioned is usually higher, the interest rates are usually a little lower, and the tenures that lenders are open to are longer.
However, if you are looking at a relatively small loan amount, then you could be better served with a personal loan rather than a car loan. There are a few reasons for this.
–Personal loans are disbursed relatively quickly. Since the loan does not involve a third party (a car dealer in this case), the bank can quickly check your credit score and relevant documents, and disburse the loan if you are approved. Personal loans are approved and disbursed very quickly these days. Some lenders will have you preapproved for a particular amount, which means you can have the money with you in a matter of hours.
–The title of the car is clear. When you apply for a car loan, the car is registered to you but there is hypothecation on the registration to the lender. Once you clear your car loan, you need to get an NOC from the lender, submit the relevant documents to the RTO and have the hypothecation removed from the registration. The RTO will issue you a new registration, one without the hypothecation. You can save yourself a lot of legwork, not to mention the re-registration fees if you simply opt for a personal loan for the car.
–You can opt for the car’s entire value. This might not hold true for new cars, since their value is relatively high, but a look at used car loans will tell you that lenders will not finance the entire cost of the vehicle, as low as it may be. In addition, the interest rates for used car loans are quite high. A personal loan will make far more sense, as you can apply for the entire value of the used car. Again, since the vehicle itself is not involved in the loan you will not have to deal with a surveyor who will value the car, and not necessarily agree with your price estimate of the car.
–You can take a loan worth slightly more than the car’s value, for accessories. Any car loan looks at the value of the car, not at any accessories. At the most, it will consider dealer-fitted accessories, which are expensive compared to aftermarket fitments. With a personal loan, you can account for the costs of accessories like alloy wheel rims, a tire upgrade or replacement, and an audio system in the amount that you apply for. This will make your initial payment amount less and will spread out the extra cost over the EMIs, which will be a nominal increase per month.
–Various other factors like should you ever be unable to repay the loan, with a personal loan you have the option of selling the car and using the amount thus gained to repay the personal loan. With an auto loan, the car is collateral, and the lender will simply repossess the car to recover its loss.
Personal loans being unsecured loans will offer a higher interest rate and a lower tenure, but if you use tools like the personal loan EMI calculator that lenders have on their websites, you can learn more about personal loan interest rates and judge what EMIs of the personal loan will be comfortable for you even before you apply for it!