Getting a vehicle loan to buy a car or truck is so common that many buyers don't consider other options. But while a specific auto loan can be the best choice, it's not the only one. Have you considered the value of using a traditional personal loan instead? To help you find the right form of credit to buy your next car, here are a few key factors to use in order to pick your loan type.
1. Interest Rates
Many car buyers find that auto loans have lower interest rates than personal loans. This is often because they are designed to encourage car purchases and they have the added financial protection of a piece of collateral. However, depending on your personal credit history and options at your financer, you may find that a personal loan meets or exceeds these interest rates.
2. Collateral
Auto loans are attached to the vehicle as collateral, which brings the perks of easier access to credit. However, you may want to get outright ownership of the car or truck immediately rather than at the end of the loan. Not only does this protect the vehicle from repossession, but it also frees you from lender requirements like full insurance coverage.
3. Term Length and Limit
How much you can borrow and how long you can pay it back may be different between the two types of loans. Auto loans have increasingly grown to offer terms up to or beyond six years. Limits also increase to accommodate higher prices of cars. How much you can borrow on a personal loan will depend on the strength of your credit. And term lengths may be more limited by traditional lenders' rules.
4. Down Payments
Because personal loans are based solely on your ability to repay, they aren't tied to any particular value of the asset and you can use the funds for just about anything you wish. So you can borrow almost the full value of the vehicle. Auto loans generally require down payments, so you may want to use a signature loan if you don't have a lot of cash available.
5. Age and Condition
Finally, what type of vehicle are you purchasing? Many auto lenders only want to loan against newer vehicles with higher values they can recoup. So if you want that old fixer-upper, a project car for backyard tinkering, or even just an older model of a used car, you may have to seek a standard personal loan that doesn't depend on any collateral.
Where to Start
Want to know more about the pros and cons of using a personal loan or an auto loan to buy the car you're shopping for? Start by meeting with a lender in your area, such as G.E.C.U., to find answers to your questions. No matter what you choose, you're sure to build a stable financial future as a car owner.
