Generally, people buy used cars for two reasons. Either they have a tight budget or they want to use it to improve their driving skills before buying a new car. In the former case, the buyer may have taken out a used car loan. Used car loans are slightly different from standard car loans taken to buy new cars. Unlike new car loans, the amount of loans on used car loans depends on the age, model, and condition of the car.
Here are some things to keep in mind when choosing between a personal loan and a used car loan.
Interest rate: The interest rate on used car loans ranges from 14% to 18% and the personal loan interest rate is between 11% and 24%. For example, the interest rate on personal loans from Bandhan Bank ranges from 11.49% to 20% and the interest rates for used car loans start from 15%. Your personal loan interest rates will depend largely on your credit score, employer, income, and the value of your loan. Therefore, it is possible that if you have a good credit rating and/or a high salary with a well-known employer, personal loans may be seen as a cheaper option than a used car loan.
Loan Amount: Generally, lenders borrow up to 70% -90% of the used car. For example, Bandhan Bank funds up to 80% of the car's value. Lenders have their way of securing a car and this can be less than what you paid for the car. For example, if your used car is priced at Rs.4 lakh and its price was fixed at Rs.3 lakh by your lender, your loan amount may only increase to Rs 2.4 lakh (i.e. 80% of Rs 3 lakh). An additional Rs 1.6 lakh should be paid out of your pocket. However, if you choose a personal loan, you can take out a personal loan of Rs 4 lakh (depending on your income and profile) and use all the money you earn to pay for your car purchase without charge.
Loan tenure: The loan term used for a car usually increases by five years. However, occupancy may also depend on the age and condition of the vehicle. For example, Bandhan Bank requires you to repay your used car loan within ten years from the first date of purchase of the vehicle, subject to a period of five years. So, if you buy a 6-year-old car, you will have 4 years to repay the loan. In the case of a personal loan from the same lender, you have the option to repay it within 5 years regardless of age and status.
Credit points: While a personal loan may be seen as a better option than a used car loan at a few parameters, the balance tends to be used for a car loan if your credit score is not available. A personal loan is an unsecured loan, the approval of a personal loan will also depend on your credit profile. A credit score is one factor among many which decide whether you fall into the personal loan eligibility criteria or not. Since a used car loan is a secured loan, the chances of getting a loan are higher than personal loans, especially for applicants with bad credit scores.
Loan approval process: As it is an unsecured loan, the process of approving a personal loan is much simpler and faster than the amount spent on the loan. This can be very difficult if you are buying a used car from random players in the used car category. For more, you can read the Bandhan Bank personal loan details. After reading the details the borrower is in a better condition to judge whether he is better off taking a personal loan or a used car loan.
Conclusion:
In summary, both used car loans and personal loans and have their advantages and disadvantages. As a consumer, you should consider both options before making a call as to which option works best for you in terms of approval, process, pricing, and terms.
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