One of the perplexing questions which haunt most people is to how to choose between different credit options. Every credit option has some pros and cons, but more often than not, these are so obscure that it becomes well neigh for a borrower to choose the best credit option. This lead to the selection of credit option based on gut instincts or spur of the moment loan. However, the decision to take credit must be taken after considering different aspects of a credit option.
Today we will decipher the difference between two such credit options. If you continue with us till the end of this article, then you will be sure about which options will better suit you between the personal loans and used car loans. But before deep-diving into their difference, let us understand them.
A personal loan is one of the most common credit options. It is an unsecured loan, and an individual is not required to pledge anything to get approval for this loan. A personal loan can be taken for almost anything in the world, provided it is legal. It helps one in debt consolidation, financing travel, education, buying machinery and several other purposes. It can also be used to buy a used car. Also, the personal loan interest rate is affordable.
Used car loan
The name ‘Used car loans’ rightly suggest, a credit option which can be used to buy a used car. It is a specific purpose loan.
Factors affecting the selection of used car loans and personal loans
- Rate of interest
Interest rate refers to the extra percentage charged on a particular loan. The interest rate for the used car loan hovers in the range of 14% to 18% whereas the personal loan interest rate lies in the range of 11% to 20%. Interest on Used car loans depends on the age, model and condition of the car while the interest on the personal loans depends on the credit history, income and employment tenure. An individual may get a cheaper
Interest on used car loans while another may get a cheaper rate on a personal loan. Individuals must check the rate of interest offered on both the credit options and must select the one which offers a lower interest rate.
- Loan Amount
The loan amount is another critical factor which plays an essential role in the selection of credit options. An Individual gets around 70% to 90% of the used car value in case of used car loans whereas an individual can get a higher amount in case of the personal loan depending on his credit history, income and other factors. Individual must analyse his savings, income and must choose the loan which suits his requirement.
- Repayment tenure
Repayment tenure or loan tenure is another crucial factor which must be considered before selecting a credit option. The loan tenure of a used car depends on the condition of the car, whereas the tenure of a personal loan depends on the income and credit history. Some may be offered a loan tenure of maximum five years by the personal loans while others may not be offered. Individual must keep in my mind his income and EMIs so that it does not impact his financial health while selecting a credit option.
- Credit score
If the credit score of a person is high, a high credit score is a score which lies above 750 then the individual can rely on the personal loans whereas if the credit history of a person is poor and hence has a low credit score then Used car loan is the credit option to bank on.
- Loan approval process
Everyone wants the amount to be handed over in a short duration as possible. While personal loan takes a very short time in getting approved because of the unsecured nature of the loan, used car loans involve comparatively higher time as banks, and financial institutions are required to check and gauge the condition of the car. So, an individual may consider this factor for the selection of the loan. However, solely depending on this factor is least expected and will be no less than a crime.
So, A personal loan may be beneficial for one, or it may not be for another. Similar is the case with a used car loan. Individuals must evaluate all the above crucial factors and should opt the credit option which best suits them.