How to finance a used car purchase- car loan or personal loan?

In this article, I would like to reply to the questions that many people have regarding the financing feature.

People are purchasing second-hand cars mainly for two reasons – one of the reasons is having a constrained budget or they want to purify the driving skills in the used car before buying the new car. The buyer is more likely to finance the car through the loan. The Loan Amount and the approval in case of the used cars are subject to the age, model and the condition of the car i.e. different new car loans. Moreover, the interest rates are also generally higher than the new car loans. In such a situation, deciding between the used car loan and the personal loan can be a strong job.

Now we can find out which work is better for a second-hand car purchase – a used car loan or a personal loan.

Interest Rate:

For Used Car Loans, the interest rates range from   14% to 16% while for the personal loan they range between 12% to 16%. Therefore, it is quite possible in some cases; personal loans will work out as a cheaper option than the used car loans.

Loan Duration:

In the case of car loans for second-hand, banks and other lenders offer loan tenure up to 5 years. However, age and condition of the second-hand car also influence the tenure of the loan.

Personal Loans seem to be a better option than the used car loans at the first image. However, the balance will tilt in favor of the last if you have a poor credit score. As personal loans are unsecured loans, the credit score will play a major role in the loan approval process and the selling, the interest rate. The low credit score can also translate into the higher rate of interest on personal loans, possibly nullifying the interest advantage.

On the other hand, the used car loans are secured loans where the used car would be lower than what is being offered through personal loans. So, if you have a poor credit score, it might be that the interest on used car loans would be lower than what is being offered through personal loans. The probability of the loan approval will also be higher in a case of the used car loans. Both personal loans and used car loans have their own advantages and disadvantages. Choose for the former if you are looking for a higher loan amount at a lower interest rate. Select for a used car loan if you have the low credit score.