There are two main reasons why people purchase used cars — either they are on a fixed budget or they want to sharpen their driving skills in a used car previous to graduating to a new car. In the former case, a used-car buyer is also most expected to get his car finance with a loan.

However, distinct new car loans, endorsement and worth of used-car loans are topic to sure conditions, age and model of the car. Furthermore, interest rates on used car loans are usually 3 per cent–5 per cent further than new car loans. While most lender businesses up to 100 per cent of the new car value, in case of used cars, they generally finance 75 per cent – 80 per cent of the car value. In such a situation, can a personal loan work out as cheaper and suppler option?

Interest rate: Personal loans are a bit cheaper than used car loans as far as the interest rate is anxious. We are providing used car loans with the interest rate worth 13%.

Amount of loan: Typically, lenders offer 70 per cent–90 per cent of the value of the used car as the loan. Again, the sum of the loan to be disbursed depends on the value of the car as firmly by the lender. This can be lower than the price negotiated by you. So, if the negotiated price of the used car is Rs 6 lakhs and the value determined by the bank is Rs 5 lakhs, you can gain a loan of up to Rs 4 lakhs (i.e. 80 per cent of Rs 5 lakhs). The discrepancy sum of Rs 2 lakhs, of which Rs 1 lakh will be down-payment, would be borne by you.

In distinguishing, if you gain a personal loan of Rs 6 lakhs, you can use the whole loan sum for car purchase without spending anything from your own pocket. This would be mainly helpful if the rate of interest of your personal loans works out to be lower than the accessible used-car loans.

Loan duration: For used-car loans, banks and non-banking financial institutions bid tenures of up to 5 years. Though, this is topically in the age and state of the used car. Consequently, if you buy a 4 year old car, the maximum tenure of your used car loan will be 4 years.

Where used car loans achieve over personal loan:

Personal loans are unsecured loans and therefore, your credit score will play a main role in forming the interest rate, and still whether your personal loan application is accepted at all. Here, your low credit score could decode into a higher rate of interest.

On the other hand, used-car loans are secured loans wherein the used car would serve as security. This increases the prospect for someone with lower credit score to acquire his loan approved. Also, it is quite likely that the interest on used-car loans would be poorer than what is being accessed during personal loans.

Both used car loan and personal loan contain their own strength and limits. Think personal loan if you are looking at higher loan sum at a comparatively lower interest rate. Used car loan, on the other hand, may be careful if you have lower credit score.

Author's Bio: 

Finheal is writing articles and blogs on financial matters.