It’s a great idea to have one’s own vehicle. Zooming past the city streets on to the highway for a long drive is a dream many of us have. But not everyone is able to afford a new car as prices are high and means are limited. Especially if you have a big family with spouse, parents and kids, you will need a big car, and buying a new big car is no child’s play.
That’s when used car loans come into play. Opting for a used car loan is a smart and cost-effective purchase. Financial institutions such as Tata Capital offer used car loans for a wide collection of cars ranging from hatchbacks and SUVs to premium sedans. They extend loans up to 95 per cent on your car value and provide flexible EMI repayment options and quick disbursal of loans. A second-hand car loan could, therefore, be a prudent option when you are thinking of buying a second-hand car. However, you might think, why take a used car loan when you can take a personal loan? Well, you certainly have a point. Let’s look at the major differences between a personal loan and a used car loan.
Purpose: A personal loan is an unsecured loan that can be taken for any purpose. There is no restriction on how you use the money that you get from a personal loan. It is an unsecured loan, which means you do not have to pledge any collateral while availing this loan. A used car loan, on the other hand, is secured against the vehicle you intend to purchase. It means the vehicle serves as collateral for the loan. In case you default on your repayments, the lender can seize your car. The lender has ownership over the asset until the final payment is made.
Amount of loan: If you are eying a vehicle that’s worth over Rs 25 lakh then you cannot opt for a personal loan for that. Institutions such as Tata Capital give a minimum of Rs 75,000 and a maximum of Rs 25 lakh as a personal loan. Whereas, if you opt for a second-hand car loan from an institution such as Tata Capital, then you are free to opt for any high-end vehicle of your choice as they give a maximum amount of Rs 50 lakh as a used car loan. However, if your requirement is really low, say less than a lakh then you cannot take a used car loan as the minimum amount you have to take as a used car loan is Rs 1 lakh. In that case, it’s best to take a personal loan.
Interest and tenure: The interest charged for a personal loan in institutions such as Tata Capital is 11.25 per cent, whereas the interest charged for used car loans is 12.5 per cent. However, with used car loans, you have the flexibility to opt for high-end models whereas with personal loans there is a restriction on the amount. Personal loans can be paid over a period of six years, so you have the flexibility to pay at ease over six-years time, though you end up paying extra interest. For used car loans, you have to repay the loan within five years, but then you save on interest.
Well, both personal loans and used car loans are useful when it comes to buying a car. It all depends upon your need and ability to repay the loan. .