If you’re in the market for a new car, you probably have one question on your mind: How can I pay for it?
Used cars can cost anywhere from $20,000 onwards. A new car will certainly cost a whole lot more. Chances are you don’t have the full amount of your new car in savings. That just means you now need to take out a loan. While the logical route seems to be going for an auto loan, did you know a personal loan may also help?
Auto Loan vs Personal Loan: What Is the Ideal Choice?
There are things to consider when trying to buy a car and deciding between personal or auto loans. Let’s explore some of them now:
Credit Score
If your credit score is good to great, then you’re more likely to qualify for loan terms that are ideal. The higher the credit score, the better the loan terms. It’s usually more difficult for people who have a credit score that’s 570 and below to qualify for a personal loan. Getting a personal loan will also be difficult if your credit history isn’t enough.
That said, lenders don’t base their decisions on credit scores alone.
Credit requirements are far less rigid when it comes to auto loans. That’s because the lender can repossess the car should you default, which protects them easily. Even people whose credit is questionable or who have no credit history can qualify for an auto loan.
However, in those cases, a cosigner may be required and the costs will be more expensive.
Interest Rate
Auto loans tend to offer lower interest rates than personal loans because the former is secured by the vehicle, while the latter are unsecured. It’s possible to get a lower interest rate on a personal loan if there’s collateral provided, however.
Qualifying for an auto loan with an annual percentage rate (APR) that’s at 0% through the dealer would be possible for someone with excellent credit. The repayment periods of these loans are generally short, at around three years or 36 months at most. It should be easy to find them on the website of an auto dealer, since they tend to advertise these loans.
Great deals aside, it’s still possible to get an auto loan with an interest rate that’s low for cars both used and new. Double-digit APRs are at play when credit is poor or non-existent. Subprime lenders tend to offer loans at sky-high rates to borrowers whose credit is poor.
Other Fees
It’s possible to get auto loans with no origination fee at play. In some cases, prepayment penalties will be in place, making paying off loans early quite expensive. Sometimes, dealers will offer the possibility of a rebate on the purchase price of a lower loan interest rate. While that’s not an extra fee, this decision is vital to taking down the loan’s overall cost.
More often than not, personal loans will come with prepayment penalties and origination fees.
Conclusion
Contrary to popular belief, it’s possible to use personal loans to buy a car. APR plays a big factor as to whether a personal loan or auto loan will be the ideal choice. Aside from that, things to consider are the interest rate, credit score and other fees.
Need help with car financing? Reach out to Get Approved Canada today! We’re Canadian loan specialists from coast to coast, whether you need help with an auto loan, personal loan or mortgage loan.
