Considering a personal loan to buy a car? Here are its pros and cons
Personal loans might be a sensible option when buying a car in some cases. However, since auto loans are usually a better option, it is important to weigh the advantages and disadvantages. A summary of the benefits and drawbacks is provided below to help you decide.
The benefits of using a personal loan to buy a car include:
Generally, personal loan interest rates are more sensitive to your credit score than car loans. This means borrowers with excellent credit can potentially qualify for much lower rates on personal loans compared to subprime car loan rates offered by dealerships.
A brief loan offer based on a soft credit check is provided upon pre-qualification, and it does not affect your credit score. This makes it possible for lenders to expedite the process of final approval after you apply formally.
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The disadvantages of taking a personal loan to buying a car include:
Personal loans are commonly used to consolidate debt or cover unforeseen costs for which a shorter repayment term may be more advantageous. Since cars are meant to last for many years, a longer loan term is required to spread out the cost.
Since personal loans are unsecured, lenders would rather have shorter repayment terms to lower their risk. They get their money back sooner because the periods are shorter. A shorter term may result in higher monthly payments, but overall loan interest will probably be lower. This is because a shorter term permits less interest to accumulate and interest is calculated on the outstanding balance.
Collateral is not necessary for a personal loan. Due to the lack of a tangible asset to seize in the event of default, the lender takes on
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