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Most car loans are typically offered at fixed 36 to 60-month terms, while personal loans usually have repayment periods starting at 12 months. Both personal and car loans come with annual percentage rates (APR), so it is important to shop around for the right loan if you are considering either one for a car purchase. While they typically do not come with any origination fees, car loans may sometimes come with prepayment penalties.

Personal loans generally require borrowers to pay origination fees to cover the underwriting of the loan. You can still be approved for a car loan with poor credit as the lender could be able to repossess the vehicle if you default on the loan. However, borrowers with credit scores below 580 may not be approved for a personal loan or may require a cosigner. Personal loans and auto loans both offer favorable terms for borrowers with good credit. The different ways for car financing may look quite similar, so let us take a closer look at the details: 1. With unsecured credit, you could be able to keep the title to your car should you default, but you still risk facing collections. Like a car loan, defaulting on a secured loan could make you lose the title to your vehicle. In this case, you may need to take out a secured or unsecured personal loan. Having bad credit can also make it harder to qualify for auto financing from either a lender or a dealership. If you have bad credit, you may find it more beneficial to work to improve your credit score than being stuck with a high annual percentage rate ( APR) on a personal or car loan. Personal loans typically have higher interest rates than auto loans, sometimes as high as 29%. On the other side, credit scores are also a powerful tool for the decision to get a loan at all or to determine your interest rate.īoth car loans and personal loans have interest rates based on your credit history. On one side, they are defined by the borrower’s credit history. Most lenders use credit scores to describe a potential borrower’s creditworthiness. However, both options affect your credit score - hence, we will take a look at that next. Most of them are secured, too, but there are unsecured ones as well. Personal loans on the other hand can be used for any major purchase. As they are using the vehicle as collateral, they are secured loans. So the bottom line is: Auto loans can only be contracted when buying a car. If you are unable to repay the loan, the lender may seize your asset to recoup their losses. Personal loans generally range from $1,000 to $50,000.Ī secured personal loan is secured against a valuable item such as a house or a car. This sum may be used at the borrower’s discretion and can be used for major purchases or to pay off debt. Understanding Personal LoansĪn unsecured personal loan is a loan made by a bank or lending institution that gives the borrower a lump sum for a certain amount. If you default on your loan payments, the lender may seize the vehicle. The lender maintains ownership of the vehicle until the borrower makes the final payment. The auto loan is secured against the vehicle being purchased, making it collateral. What is a Car Loan?Ī car loan is a loan used to purchase a vehicle. When faced with the matter of paying for your next car, you may wonder if a personal loan or car loan is the best option to choose. With many cars priced at five figures, it is easy to wonder just how you will pay for such a large purchase. The next question is: How will you pay for it?īuying a car is one of the biggest investments you can make.

You have been shopping around for weeks and now you have set your heart on the perfect new car. We will help you to make a decision by explaining the differences between both loan types. car loan, there are some things you should consider.