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Which is Better, a Car Loan or a Personal Loan?

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Highlights

  • Which option would be best for you while choosing between a car loan and a personal loan?
  • Read all such factors that can help you choose the right option

If you are one of those individuals who are looking to buy a car for yourself and are confused as to which of the two loan options – personal loan and car loan – should you avail. Worry not, we will be comparing these two on several factors so that you can choose the right option.

Factors on Which a Car Loan and a Personal Loan is Compared

We have listed out the factors in the below table. Check them at a glance before we give an in-depth explanation on all.

FactorsPersonal LoanCar Loan
Rate of Interest11% to 18% per annum8.5% to 9.5% per annum (New Cars

12%-17% per annum (Used Cars)
Loan Amount100% of the amount you seek provided you meet the eligibility criteriaUpto 90% of the on-road price of the new car

Upto 70%-80% of the valuation of used cars
Purpose of Availing the LoanFor any PurposeOnly for Buying the Car
Tenure of the Loan1 to 5 YearsUpto 7 Years (New Cars)

Upto 5 Years (Used Cars)
Ownership of the CarOn your Name ImmediatelyAfter the Completion of the Loan

Now it’s time to discuss these pointers in detail so that you can know more about them.

Rate of Interest

Since a personal loan is a kind of unsecured loan and a car loan being a secured loan, the rate of interest is higher in the former. New car loans and used car loans can be given at a modest interest rate ranging from 8.5% to 9.5% and 12%-17% per annum, respectively. Whereas for a personal loan, it usually ranges from 11% to 18% per annum. Also, you must know that the rate of interest directly affects your repayment, hence you should decide with a clear head what interest rate you want to opt for. One thing you also need to remember that in case you have a good credit score and repayment history, you can get a lower interest rate on a personal loan.

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Loan Amount

When you will opt for a personal loan, you can get this full amount as the loan amount provided you have sufficient income and repayment capacity, besides having a good credit score. Whereas, in the case of a car loan, you will get a maximum of upto 90% of the on-road price for new cars and upto 80% of the car value for used cars.

Suppose you want to buy a new car with a on-road cost of INR 5 lakh, which means you could get a maximum of INR 5 lakh as the loan amount. You need to pay the remaining 50,000 as margin money in advance. In case the value of the used car is 5 lakh, the loan disbursal could be a maximum of 4 lakh. So, you need to pay the remaining 1 lakh upfront. In case the cost of the car is higher, you will have to arrange a bigger amount which would not be easy for you.

So, the decision to make while choosing between the loan amount between a personal loan and a car loan is totally up to you.

Purpose of Availing the Loan

A personal loan can be availed for various purposes including buying a car, whereas, a car loan is strictly for buying the car you want. So, this is the basic difference between both of them when it comes to the purpose of the loan.

The borrowed loan amount can be only used according to the type of the loan you’re opting for. In case of a personal loan, the amount will come directly into your bank account and you can spend on anything you want. While, in case of a car loan, the lender will pay the amount directly to the car seller and you will have to pay the loan amount to the lender via EMIs.

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Tenure of the Loan

The personal loan can run for a maximum of 5 years, while a car loan can be given for a maximum of 5 years for used cars and 7 years for new cars. This tenure can vary from one lender to another. When you opt for a shorter loan tenure, the EMIs will be higher, but the interest amount will be lesser as compared to a longer tenure. So, it’s totally upon you when it comes to choosing the loan tenure.

Ownership of the Car

When you buy a car with a personal loan, the ownership of the car will be transferred to you immediately. While in the case of a car loan, the ownership of the car will only be transferred to your name after you fully repay the loan amount and get the loan closure letter from the lender. In the case of a personal loan, you also don’t have to pay any kind of down-payment for your vehicle.

Eligibility Criteria

When it comes to a personal loan, lenders check your age, CIBIL score, job type, and others with utmost scrutiny. This is because of the unsecured nature of the personal loan. Individuals with poor credit scores won’t get a personal loan.

Whereas, in the case of a car loan, the eligibility criterion is not so strict – you just have to qualify some of the basic conditions. Lenders will also check the overall value of your car, model type, and other things before deciding the loan amount. In any case, if an individual has not a good credit score, he or she would be able to get the car loan as this is a secured loan and credit risk is lesser as compared to a personal loan.

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So, after knowing all these important factors, you must be in a better position to decide which kind of loan would be better for you between car loan vs personal loan!

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Personal Loan Interest Rates September 2020
Fullerton India14.00% - 33.00%
HDFC Bank10.75% - 21.45%
ICICI Bank10.75% - 18.49%
IndusInd Bank11.25%
Kotak Bank10.99% - 20.99%
RBL17.50% - 24.00%
Standard Chartered Bank11.00% - 15.00%
Tata Capital10.99% - 18.00%
Home Loan Interest Rates September 2020
Axis Bank7.75% - 8.55%
Bank of Baroda7.00% - 8.40%
Citibank8.20%
HDFC6.95% - 8.00%
ICICI Bank6.95% - 8.05%
Indiabulls Housing Finance Limited8.80% - 11.05%
Kotak Bank7.20% - 9.30%
LIC Housing6.90% - 7.90%
Piramal Capital & Housing Finance9.00% - 9.10%
PNB Housing Finance8.60% - 9.45%
Reliance Home Finance8.75% - 14.00%
State Bank of India/SBI6.95% - 7.60%
Tata Capital9.20% - 9.35%