Should You Use a Personal Loan to Buy Your Next Car?

Should You Use a Personal Loan to Buy Your Next Car?

The Pros and Cons

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Are you thinking about financing the next car you buy?

If yes, remember that you have various already-available options, like a personal loan, which is one of the most popular ways of financing a new car purchase. However, it’s important to consider the advantages and disadvantages of using a personal loan to buy a car.

Please continue reading to learn more as we discuss the pros and cons of financing your next car using a personal loan.

Pros of Using a Personal Loan

If you’re looking into using a personal loan to finance your next car, here are some reasons why it could be the right choice for you:

Personal Loans Often Have More Flexible and Negotiable Terms

If you’re eager to buy a new car, but don’t want high payments that bite off a big chunk of your net monthly income, a personal loan may be an ideal choice because you can negotiate the loan terms. You can also choose from a healthy range of interest rates, repayment options, and other features.

Additionally, you can negotiate for lower monthly payments than what’s available with most other loan facilities required (up to 25% off).

It’s Easier to Qualify for a Personal Loan, Even with Bad Credit

Most lenders often hesitate to lend money to people with poor or low credit scores because they assume the borrower will default on their loan.

Additionally, with poor or bad credit, you may not qualify for a traditional bank loan, or when you qualify, have no choice but to pay a higher interest rate than you would otherwise pay.

In contrast, even if you have bad credit, it is relatively easy to get a personal loan from financial sources like trusted online lenders and credit unions–if you are a member of one.

While there are many benefits to using a personal loan to buy your next car, there are also some serious drawbacks.

Cons of Using a Personal Loan

Here are some of them:

Personal Loans Are Unsecured, Meaning Higher Interest

A personal loan is an unsecured loan.

Unsecured loans are a lot riskier for the lender because there is no collateral. Because of this, lenders tend to charge a higher interest rate on unsecured loans than on secured ones.

On the other hand, compared to an unsecured loan, a secured one offers you a lower interest rate because of the involved collateral (like a car or house) that protects the lender should you default on the loan.

Lower Limits and Shorter Repayment Times

Because of the unsecured nature of personal loans, they generally have lower limits. For example, you can easily qualify for a secured $20 000 auto car loan but struggle to get a $10000 personal loan.

Moreover, compared to most car loans that typically have favorable repayment terms–seven years and more in some cases–most personal loans have shorter repayment terms–often three to five years. The shorter repayment times mean you’ll have to pay a higher monthly loan premium, which can be disadvantageous.

Clearly, using a personal loan to buy your next car has stark pros and cons. Thus, if you decide to use a personal loan to finance your next car, keep the following in mind to ensure you get the best terms possible.

What to Look for When Choosing Your Personal Loan Provider

To get the best rates, you should ensure your lender has a history of good service and low fees. You can do this by checking out their website and reading reviews from other customers on independent review sites like Trustpilot.

If you’re looking for a personal loan offering the lowest interest rate possible while still being safe and secure, consider an online lender like SoFi loans, which offers competitive and personalized personal loan rates, limits, and terms.

Ultimately, Should You Use a Personal Loan?

Ultimately, weigh the pros and cons to determine if using a personal loan to finance your next car is your best option.

Fundamentally: A personal loan can be an ideal way to buy your next car if you have bad credit or want the freedom to negotiate your loan terms with a personal loan officer.

On the other hand, a personal loan may not be a great way to buy your next car if you want a longer repayment period–in which case you’re better off with a standard auto loan–or are eager to avoid the higher interest rates tacked onto unsecured loans. Hopefully, this list has shed some light on this tricky question.