Personal Loan Vs Car Loan: Which One is Better?

Let’s say you are thinking of buying a car, but you don’t have enough cash in hand to go for the purchase. In that case, you’ll definitely think of opting for a loan, which most probably is the car loan option, right? But the thing with a car loan is that your car will be a security for the bank, and the tenure is much longer than other loan options, such as a personal loan. So now you are stuck and can’t make the decision, is that the case? Well worry not, we are here to make things not just easy, but super easy with our detailed breakdown of personal loan and car loan options. We will go over a bunch of things, but most importantly, by the end of this post, you’ll precisely know which one of these options is a better pick for you. Here we go.

Breaking Down Personal and Car Loans

Personal Loan Vs Car Loan

Personal Loan: Well, a personal loan is what you call an ‘unsecured loan.’ This means it’s a kind of loan where you don’t need to put up anything like your house or car, or anything like that as a security. Pretty cool, right? You can use this loan for all sorts of stuff, even for buying a car. But here’s the catch though, since it’s unsecured, banks are a bit cautious. That’s why they usually slap on higher interest rates. It’s like their way of playing it safe.

Car Loan: On the flipside though, a car loan is specifically for when you wanna get yourself a new ride, be it brand spanking new or a used one. This one’s a ‘secured loan.’ That means the car you buy becomes the collateral. In simple words, if you don’t keep up with the payments, the bank might take your car. But yeah, there’s a silver lining, the interest rates are usually lower compared to personal loans. Why? Because the bank feels safer knowing they have something of yours.

Factor Personal Loan           Car Loan
Interest Rate Higher (10-24%) Lower (8-12%)
Collateral Not required Car as collateral
Loan Tenure 1-5 years 3-7 years
Loan Amount Generally lower Generally higher
Processing Time Faster Slower

Key Differences Between Personal Loans and Car Loans

1. Interest Rates

First of all, car loans, you see, usually have friendlier interest rates, we’re talking about 8.5% to 14%. Why’s that? It’s because these loans are secured, the car you buy kinda serves as a backup for the bank. But, personal loans are a whole different story. They don’t need any collateral, which sounds cool but means the interest rates can jump up to 20% or even more. Yeah, it’s because the banks are taking more of a risk here.

2. Security and What You Put on the Line

Now, let’s talk about what’s at stake with these loans. With car loans, your shiny new car is the security. It’s like telling the bank, “If I can’t pay up, you can take my car.” But personal loans? They’re like the wild ones because there is no security, nothing for the bank to hold onto. That’s why they’re kinda edgy for the banks, and why they slap on those higher interest rates.

3. Loan Tenure

You see, car loans are more chill here. They give you a long runway, usually from 1 to 7 years. This means your monthly payments can be more relaxed, but don’t forget, you’ll probably end up paying more interest in the long run. On the flip side, personal loans are like a sprint, 1 to 5 years tops. Your monthly payments are higher, but yeah, you might save on the total interest.

4. Who Can Get These Loans?

Alright, let’s talk about who can actually get their hands on these loans. Now, car loans and personal loans, they’re like apples and oranges when it comes to who can get them. For a car loan, what you really need is a steady paycheck and a decent credit score because the loan’s kinda tied to your car. But for personal loans, it’s a whole different thing because in that case they look at your credit way more seriously and want a bunch of paperwork. Since there’s no collateral like a car backing up a personal loan, lenders wanna make darn sure you’re good for the money, checking your credit history and all.

5. How Much Can You Borrow?

With car loans, you’re likely to get more dough because the car acts like a safety net for the lenders. They’re chill with lending more since they’ve got the car as a backup. But with personal loans, don’t expect to get sky-high amounts. These loans are not backed by anything, so the most you can borrow pretty much depends on how solid your credit game is and what you earn.

6. The Paperwork and Waiting Game

Now, let’s get into the nitty-gritty of paperwork and how long it takes to get these loans. Car loans, they need a whole lot of paperwork. You gotta provide all the deets about the car, its value, and whatnot. This stuff can drag out the time it takes to get the loan. On the flip side, personal loans are way quicker to process. They don’t ask for much paper stuff, so if you’re in a rush for cash, personal loans might just be your go-to option.

So Which One Is Exactly Better For You, A Car Loan Or A Personal Loan?

Now, we know, you are looking for the answer to this question, but you won’t find it anywhere because the answer to this question is something that only YOU can tell. How exactly? Well, you see, everyone’s financial condition is different, right? That means, some of you might find the personal loan option more attractive, whereas, on the other hand, some of you are feeling more attracted to the higher loan amount and lower interest rates of car loans. So yeah, it all boils down to what you are expecting from a loan, and you must consider the interest rates, processing time, tenure, and things like that as well. That means, there is no definitive answer to this question, it is subjective.


There you have it. Now keep in mind though, that the things that we talked about in this post are from a general perspective, of course, there could be some different interest rates, tenure, loan amount, and eligibility criteria when you gather information from different banks. That’s how it is. So yeah, we’ll definitely advise you to dig a little deeper on your own to find the lowest possible interest rates along with decently long tenure, and shorter processing time. On top of that, DO NOT forget to give a thorough read to the policies set by the banks because that will keep you out of any troubles later on.

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