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Borrowing Crossroads: Deciding Between a Personal Loan and a Car Loan

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Created on
January 26, 2023

Summary

What’s Inside

When it comes to getting a loan for a new car, two main paths stand out: personal loans vs car loans. By weighing these options, you'll gain a clearer perspective on how to best secure the funds for your desired automobile purchase. Let's dive in and explore these options to help you make the right choice for financing your dream car.

Personal Loan vs Car Loan - What's Good for You?

  • Personal Loans

A personal loan is an unsecured loan that can be used for any purpose. This means you don't have to provide any collateral, such as a car or a house, to get the loan. Personal loans typically have higher interest rates than car loans but have more flexible terms.

  • Car Loans

A loan to buy a car also known as an auto loan is a type of secured loan that is backed by the car you are buying. Auto loans have lower interest rates than personal loans but shorter terms. Credit cards can also be used to finance car purchases. Consider interest rates, fees, and repayment terms when choosing between an auto loan vs credit card.

So, Which Type of Loan is Right for You?

The best way to decide between a personal loan vs car loan is to consider your individual needs and circumstances. If you need to borrow a large amount of money and don't have any collateral, then a personal loan may be the best option. However, if you are buying a car and you want to get a lower interest rate, then a loan to buy a car may be a better choice.

Personal Loan vs Car Loan

Factors to Consider

Personal Loan

Car Loan

Type of loan

Unsecured

Secured

Collateral required

No

Yes (car)

Loan amount

Lower maximum amount, typically up to INR 40 Lakhs

Higher maximum amount, typically up to INR 1 Crore

Interest rates

Higher, typically between 10-24%

Lower, typically between 8-12%

Repayment terms

More flexible, typically between 1-5 years

Shorter, typically between 3-7 years

Processing time

Faster, typically within 24-48 hours

Slower, typically 3-7 days

Suitable for

Short-term purchases, uncollateralized amounts

Buying a car, lower interest rates

Credit score requirements

More lenient, but higher interest rates for lower credit scores

Stricter, lower interest rates for higher credit scores

Prepayment charges

Generally, no prepayment charges

Prepayment charges may apply

Tax benefits

No tax benefits

Interest paid on car loans is tax-deductible

It's essential to weigh all of these factors carefully before deciding between a personal loan a car loan. Ultimately, your best choice will depend on your needs and circumstances. If you need to borrow a largeamount of money and don't have any collateral, then a personal loan may be the best option.

Conclusion

Choose between a personal loan vs car loan based on your needs and preferences. Personal loans suit larger uncollateralized amounts, while a loan to buy a car offers lower interest for purchasing vehicles. Consider your situation to decide the best fit.

Instant Loans on Your Mind? Fi Has Got You Covered

Fi Money provides instant loans that arrive directly in your savings account. These are pre-approved personal loans made available to select users with good credit scores. On Fi, this process is 100% paperless, and the loans are provided at competitive interest rates — where each user remains in control with complete visibility of all details. Plus, you can avoid EMI late fees by setting up automatic in-app payments. Our licensed partner bank assigns an eligible loan amount to each user (up to ₹5 lakh).

Frequently Asked Questions

1. How is interest calculated on car loan vs personal loan?

The interest on a car or personal loan is calculated by multiplying the principal, interest rate, and time.

2. Is a car loan secured or unsecured?

A car loan is typically secured, where the car is the collateral.

3. Personal loan vs car loan - which one is better?

There is no one-size-fits-all answer to which loan is better, as the best loan for someone will depend on their circumstances and financial situation.

4. Can you use a personal loan to buy a car?

A personal loan can be used to buy a car, but it typically has a higher interest rate and shorter repayment term than a car loan.

5. Is getting a personal loan to pay for a car better?

A car loan is a better option for people with good credit and a large purchase, while a personal loan is better for people with bad credit or other needs.

Disclaimer

Fi Money is not a bank; it offers banking services through licensed partners and investment services through epiFi Wealth Pvt. Ltd. and its partners. This post is for information only and is not professional financial advice.
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