Personal Loan: Should I Go For It?
One of our readers has shared his thoughts on if he should go for a personal loan or not…
I wanted to buy a new car. I have been looking forward to it for a long time but I still didn’t had the funds. And then the perfect buying opportunity came up, and since I still lacked the funds to take advantage of it.
However, when it comes to getting a new car, most customers will opt for car financing options from the same car dealers where they buy their car. The advantage of these deals is that they are fairly quick to get and readily available at hand. On the other had, I know for personal experience that for some people it might actually be beneficial to get a personal loan when it comes to financing their purchase of a vehicle instead.
It is because of this that I started considering a personal loan to get my car.
Personal loans are a form of lending where a lending or financial institution (like a bank for example, but here are many other) grant you a set amount of money upon approval of a series of requirements. Once granted, you are entitled to use those funds in pretty much any way you like, including a car purchase. This differs greatly from regular car loans, which only allow you to use the money granted for a car purchase. This gave me a lot of pause, because there is certainly a lot of value in being able to use a personal loan to secure against something valuable, like another small vehicle or a home appliance for example.
There is also the matter of taking a secured or unsecured loan. On one hand, you can get an unsecured personal loan from banks and similar financial entities. However, this usually incurs in higher interest rates due to the bank having no “security” in case you default on your payments. On the other hand, car loan obtained directly from the dealer is a secured loan against the very car you are getting. This means that if you default on your payments, the car dealer (your lender) can take ownership of your car.
In the end, choosing one or the other type of loan will always be a matter of choice. But in case you would like to explore the possibility of personal loans more in depth, here are a few situations where they can prove to be more beneficial when looking to get a car.
If you want to buy an older car model:
As a general rule, car financing is not available for older cars, mainly because they are worth less to banks and they are not too willing to secure loans against them. That is why personal loans are perfect for vehicles that are older than seven years, since they are so much to finance with a regular car loan.
If you have valuable assets:
If you happen to have another asset to secure your personal loan against, you can definitely benefit from a secured personal loan, since they come at a far lower interest rate.
If you want to own your car right from the beginning:
If you are the kind of car owner that would like to own his car from the moment it leaves the dealer, then a personal loan is the way to go. With an unsecured loan there is no risk of having a vehicle repossessed by the bank. Although this comes at a cost (higher interest rates).