A personal loan is the money advanced to you by a lender to use for any need. In contrast, an auto loan is given by lending institutions for motor vehicle purchases. You can use a personal loan to consolidate debt, purchase a home, make a home improvement, or just personal emergencies.
Auto loans are generally cheaper than personal loans because they are secured. The auto log book serves as collateral and is jointly owned by you and the bank. While personal loans are usually unsecured, which is why they attract a higher interest rate.
Some of the auto loans available in the market include cashout refinancing loans, new car loans, used car loans, auto refinancing loans, auto loans for bad credit, and lease buy-out loans.
Comparison Between Auto Loans and Personal Loans When Purchasing a Car
| Auto Loans | Personal Loans | |
| Usage | Auto Purchases Only | Nearly Anything |
| Loan Amount | $5,000 - $100,000 | $1,000 - $50,000 |
| Repayment Period | 2-6 years | 2-7 years |
| Typical APR Range | 2.6% - 19.85% | 5.99% - 35.99% |
| Security | The Car Purchased With The Loan | Usually None |
Different lenders have different approval models to determine whether you qualify and the APR range. Most lenders use the FICO model to appraise you, while others use appraisal models tailored to their specific industry. When applying for an auto loan, remember some lenders have restrictions for certain car models.
Benefits of the personal loan:
- No downpayment required
- No lien placed on your car
- No collateral needed
- Less documentation needed
- No restriction on how you can utilize it
Benefits of the auto loan;
- It's a cheaper means to buy a used or new vehicle
- Refinancing is accepted
- Lower interest rates
Takeaway
Generally, the amount you will access depends on the financial institution and credit score. You must ensure to repay the loan on time to avoid losing the collateral or credibility with the financial institution. Also, choose a loan type that suits your needs and one that you will not struggle with repayment.