It is the ultimate desire of any person to own a car. It doesn’t matter if you belong to a working-class or a businessman, you need to have your own locomotion. The car doesn’t necessarily have to be a luxury car. There is something about owning a car that just says that ‘You have made it in life’. But you need to have money to buy a car. They can cost a fortune if you have your sight on the dream car. Don’t worry if you don’t have enough cash with you. There is an option for a loan. There are many banks that offer loans for you to own a car. There are two available loan options for you.
- Car Loan
- Personal Loan
We will discuss the merits and demerits of both these loans
- Sanctioning of loan:
It is much easier to get a car loan than a person loan. Many people are wary of taking loan from a bank because they don’t want to get in the complications of documentation and verification. The reason that a car loan is easy to get is that the car dealers have a connection with the banks which makes the entire documentation process easy and smooth. They deal with the banks and play the crucial middle men. The car dealers will help you in facilitating your desire car as they have an incentive in it.
- Interest Rate:
Banks offer you the loan you seek on the condition that you will pay extra amount which is termed as interest rate. The Personal Loan Interest Rate is higher than car loan which accounts for 12%-20% annually (depending upon the bank). The interest rate for cars vary about 9%-14% (depending upon the bank). However, the interest rates for used cars is higher than new cars which is about 14%-20%. You have to pay the interest rate amount. There is no organization/institute that will give you interest-free loan.
- Return Period:
Return Period is also an important aspect that you need to consider before making the loan agreement. The return period for personal loan is shorter about 5 years. Whereas, if you take a care loan, you can return the amount in about 8 years. You don’t want to default on the amount at stake. You can lose your car because of this point.
- Amount of Loan Offered:
The banks don’t give you the true amount of the car in car loans. They offer you about 50%-80% of the value of the car. This means that if a car costs about Rs.8 lakh and the bank have given you 75% of the amount, you must pay the remaining 2 lakhs from your own money. This will be termed as down-payment for the car. Whereas in personal loan you get the full amount at hand given all your documentation is complete and verified. If you are capable to pay the down-payment, then car loan could be best for you.
- Security Deposit:
The best thing about taking personal loans is that you don’t have to deposit anything to the bank. You will get the amount after the documentation process. It is different in the case of car loans, you have to ‘give’ the car as security for the loan. This is done in case the loanee is unable to pay back the loan (becomes a defaulter). The bank will sell the car and will be able to recover the amount given.
The merits and demerits of these loans are perfectly described. The important aspects above need to be considered with due attention. The loanee can judge which loan will be better for him. The interest rate is lower for car loan but you have to pay down-payment on your own. Whereas it opposite for personal loan. Think carefully before doing anything. You have to consider the future as well. You also need to have a cushion for yourself if you can’t deposit a few installments. This is a possibility as a rainy day is just around the corner. Please, don’t make a rash decision. It could cost you dearly.
So, which one are you going to choose? Car Loan or Personal Loan.