Buying a car is a big investment and for those who cannot afford to buy a car outright, a car loan makes it achievable.
A car loan allows you to purchase a car by making weekly, fortnightly or monthly repayments. A car loan may be the most cost-effective way for you to afford a new or used vehicle.
However, if you’re wanting to buy a new vehicle through car finance, you want to ensure you get the best possible deal. There are a few options to consider, and one of them is a personal loan.
What is a personal loan?
A personal loan involves borrowing a one-off lump sum and making regular set payments, including interest, to pay it off over time. This can be secured or unsecured, though keep in mind that unsecured personal loans generally have higher interest rates.
The payment period is typically between one and seven years, though this will vary depending on your loan.
Applying for a loan involves providing your personal information, financial information and details about your desired loan to a lender. The lender will set your interest rate, loan amount and terms.
Get funds sooner
When taking out a personal loan, you receive the funds in one go, and then begin paying them back straight away. With approval and receipt of funds generally being very quick, you will be able to fund what you need immediately, whether that’s a car, an operation, or a holiday.
Car finance allows you to buy a better car than you may otherwise be able to afford to buy outright. You get immediate access to a vehicle, which can be especially beneficial for those who may need it for work or family commitments.
Purchasing a car or paying for home renovations outright can place a significant strain on your savings, whereas paying off a smaller sum in regular instalments can be more manageable for many people. Interest rates of personal loans are fixed, so your repayments will be the same each time. And with many lenders offering personal loans, this makes it easier for you to find the best rate.
Improve your credit profile
If you have a bad credit rating, this can often make it difficult to apply for certain loans, as lenders may doubt your ability to make repayments.
Personal loans are a good option for people with bad credit profiles, as you may still find a lender willing to approve your loan, though keep in mind you will likely be required to pay a higher interest rate.
Taking out a car loan can also allow you to build your credit profile. Just make sure to make all your repayments on time.
Maintaining a good credit score and credit profile can be beneficial when it comes to purchasing other assets, such as a home, caravan, equipment or even a holiday.
You don’t need to put up collateral
Unsecured personal loans don’t require you to use assets, such as a car or home, to secure the loan. This means they are often good for people without any collateral wanting to consolidate debt or finance a large purchase.
However, it’s important to consider what you want the loan for, as, if you’re after a vehicle, a secured car loan may provide better finance rates, with the asset held as security on the loan.
It can be used for different things
One of the biggest benefits of a personal loan is its versatility. Unlike car loans, student loans or a mortgage, a personal loan can be used for a variety of purposes, from holidays to medical bills to car repairs.
A personal loan may be a suitable option in the case of an emergency where you unexpectedly need a large sum of money, such as a medical emergency or your home being damaged. The average interest rate for a personal loan is generally much lower than that of credit cards.
Similar to personal loans, a car loan involves the car being purchased acting as the security for the loan. With a secured loan, interest rates can be lower, so it’s always important to carefully consider your options before applying for any type of loan.