1. Can personal loan be a viable alternative to used car loan?

Can personal loan be a viable alternative to used car loan?

There are two main reasons why people buy used cars — either they are on a tight budget or they want to hone their driving skills in a used car before graduating to a new car.

By: | New Delhi | Updated: November 25, 2016 11:10 AM
There are two main reasons why people buy used cars — either they are on a tight budget or they want to hone their driving skills in a used car before graduating to a new car.

There are two main reasons why people buy used cars — either they are on a tight budget or they want to hone their driving skills in a used car before graduating to a new car.

There are two main reasons why people buy used cars — either they are on a tight budget or they want to hone their driving skills in a used car before graduating to a new car. In the former case, a used-car buyer is also most likely to get his car financed by a loan. However, unlike new car loans, approval and value of used-car loans are subject to certain conditions, age and model of the car. Moreover, interest rates on used car loans are generally 3 per cent–5 per cent more than new car loans. While most lenders finance up to 100 per cent of the new car value, in case of used cars, they usually finance 75 per cent – 80  per cent of the car value. In such a scenario, can a personal loan work out as cheaper and more flexible option? Let’s find out.

1. Interest rate: Personal loans are tad economical than used car loans as far as interest rate is concerned. Typically, interest rate on used car loans can range between 15 per cent and 18 per cent vis-à-vis 11 per cent – 24 per cent, as charged under personal loans.

2. Amount of loan: Usually, lenders offer 70 per cent–90 per cent of the value of the used car as loan. Again, the amount of the loan to be disbursed depends on the value of the car as determined by the lender. This can be lower than the price negotiated by you. So, if the negotiated price of the used car is Rs 6 lakhs and the value determined by the bank is Rs 5 lakhs, you can avail a loan of up to Rs 4 lakhs (i.e. 80 per cent of Rs 5 lakhs). The differential amount of Rs 2 lakhs, of which Rs 1 lakh will be down-payment, would be borne by you.

In contrast, if you avail a personal loan of Rs 6 lakhs, you can spend the entire loan amount for car purchase without spending anything from your own pocket. This would be especially beneficial if the rate of interest of your personal loans works out to be lower than the available used-car loans.

3. Loan duration: For used-car loans, banks and non-banking financial institutions offer tenures of up to 5 years. However, this is subject to age and condition of the used car. Therefore, if you purchase a 4 year old car, the maximum tenure of your used car loan will be 4 years.
 
Where used car loans score over personal loan:

Personal loans are unsecured loans and hence, your credit score will play a major role in determining the interest rate, and even whether your personal loan application is approved at all. Here, your low credit score could translate into higher rate of interest.

On the other hand, used-car loans are secured loans wherein the used car would serve as security. This increases the probability for someone with lower credit score to get his loan approved. Also, it is quite possible that the interest on used-car loans would be lower than what is being offered through personal loans.

Both used car loan and personal loan have their own strengths and limitations. Consider personal loan if you are looking at higher loan amount at a relatively lower interest rate. Used car loan, on the other hand, may be considered if you have lower credit score.

(The author is managing director of Paisabazaar.com)

  1. abhishek mane
    May 29, 2017 at 2:41 pm
    hey now you can apply for car loan online with best car loan emi ‘s with deal4bank : deal4bank /carloan_insurance
    Reply
    1. P
      pravin
      Jan 17, 2016 at 12:49 pm
      Sir mereko perstional loan chahiye mil sakty he sir
      Reply
      1. E
        Ethelyn Havice
        Jan 19, 2016 at 10:39 am
        When it comes to buying a new car, many consumers will opt for a dealer-financed auto loan because it’s quick and convenient. But in some cases it can be more effective to obtain a personal loan instead. It all comes down to weighing up pros and cons against in light of your individual cirstances. Ethelyn Havice-- istant Director
        Reply
        1. M
          Maricor Bunal
          Jun 21, 2016 at 5:46 am
          I agree that using personal loans and used car loans are both useful. Either way, the lender can choose which it would be comfortable for him/her to loan. Loansolutions.ph also cater car loans. Visit the website for more information and make the smart move today!
          Reply
          1. O
            Octopus Loan
            Jan 25, 2016 at 10:12 am
            Agreeable points on when to take an ‎Used Car Loan‬ and ‪Personal Loan‬ OctopusLoan
            Reply
            1. P
              prasad v
              Feb 17, 2016 at 12:24 pm
              Yes. We can avail personal for used car loan .Visit for the best personal loan or used car loan
              Reply
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