Why it can be easier to get a Car Loan than a Personal Loan…
Put simply, it’s generally easier to get a car loan than a personal loan. It can be confusing that the same person, with the same situation, can be on the road with a car loan but struggle for approval on a personal loan – which is especially likely if you have bad credit. Let’s take a look at the key differences and advantages.
Car loan vs. personal loan – what’s the difference?
The biggest difference between the two loans is what’s known as ‘security’. A car loan is only used to buy a vehicle, so the car is used to secure the loan. If a borrower fails to make payments and the loan is in default, lenders can repossess the vehicle. This is known as a secured loan.
A personal loan has no security, since it can be used for almost anything you want – weddings, renovations, or an around the world trip. There’s no asset associated with the loan which can be repossessed with loan defaults, making the loan riskier for lenders. A personal loan is known as an unsecured loan.
Advantages of a car loan over a personal loan
All the advantages of a car loan come down to the security of the car used in the loan. Because this means less risk for the lender, credit criteria is often more flexible and interest rates can be lower:
- It’s generally easier to get than a personal loan if you have bad credit
- You can often borrow a higher amount
- Enjoy lower interest rates
- A car loan is secured by the car purchased
Can I use a personal loan to buy a car?
The short answer is yes – an unsecured personal loan can be used to purchase just about anything. It also means you won’t have to pay back the loan in full if you sell the car within the loan period. But using a personal loan to buy a car often means you can’t take advantage of low interest rates and more flexible lending criteria. If you have bad credit, you often have better chance of approval with a car loan.