A Personal Loan or a Car Loan: Which Should I Get?

Getting personal loans is no small decision to make, as being in debt is never a pleasant experience. Sometimes it is necessary, though, especially when you need to make a large purchase, such as buying a car. Two common options are car loans or personal loans.

Depending on your situation, both should be easy enough to get. So why differentiate between the two? Well, a car loan is strictly for buying cars. A personal loan can be spent on many different things, including buying a car, but it can also be for household renovations, repairing an existing vehicle, paying for a wedding, etc.

There are benefits and drawbacks to both types of loans, so it’s just a matter of getting one that best suits your financial situation.

What Is a Personal Loan?

It’s a type of loan given to someone by a lender in which the loaner is allowed to spend it as they please. A personal loan can be either secured or unsecured.

A secured personal loan is secured against an object of value like a house or car. This object is collateral. If you fail to pay a secured personal loan, the lender can take the collateral object in return.

Most people prefer an unsecured personal loan. This type of loan has no collateral. Because there’s less guarantee for the lender to recoup their losses if the loaner fails to repay this debt, unsecured personal loans have stricter requirements. You will probably need a good credit rating to get an unsecured loan.

What Are the Usual Personal Loan Interest Rates?

Unsecured loans have higher interest rates than secured loans. Credit scores will also affect the loan amount and the interest rate. Basically, the better your credit score, the more you can borrow and the lower your interest rate will be. Of course, the opposite is also true. If you have a poor credit score, you’ll be able to borrow less and have a higher interest rate.

What Is a Car Loan?

The main difference between a car loan and a personal loan is that a car loan is always secured against the vehicle you intend to purchase. This means the car is collateral for the loan. If you don’t manage to make your payments, your lender can take the car. In order to pay off the loan, you pay in fixed installments throughout the loan. Lastly, the lender is the technical owner of the asset until you make the final payment.

What Are the Usual Car Loan Interest Rates?

Since you have collateral, the debt is deemed a lower risk, which means your interest rate is reduced. The interest rate is fixed, so you don’t have to worry about increases that can come with unsecured personal loans.

Conclusion

Even though you already have all this information, you should still do even more research about local rates and deals in your area. For example, if you’re looking for some small personal loans in Nashville, it’s best to do your research and check the local rates and deals between various institutions. This way, you can get the best deal.

Need guidance when it comes to getting personal loans in Nashville? Contact Mid-Town Finance today! We do not make payday or title pawn loans, and there are no hidden fees.