Car Loan vs Personal Loan: What’s The Difference?

What’s the difference between a Car loan and a Personal loan? The answer is that there are many differences. Let’s look at them in detail. First, a car loan is usually used to purchase a vehicle. In contrast, you could use a personal loan for other purposes, including debt consolidation or home improvement projects.

What Is A Car Loan?

A car loan is an agreement that allows individuals to purchase vehicles with monthly payments. Car loans are different from mortgages in that lenders can repossess a car if you default on your payments. To get your car loan approved, you will have to meet specific requirements such as a job or source of income and a down payment. 

The most significant benefit of getting a new or used car with financing is that you get to choose your vehicle without worrying about cash. If you don’t have the funds to purchase a car, borrowing money is your only option.

What Is A Personal Loan?

A personal loan offers you flexible terms, fast processing times, and the opportunity to consolidate your debt. Banks, credit unions, or online lenders like Kapitus offer business and personal loans. To qualify for it, you will need good credit. The process is similar to that of applying for a car loan. The median loan amount for personal loans is $14,000. A personal loan is an unsecured loan that is not backed by an asset or collateral. It means if you default on your payments, the lender cannot go after any property to pay back what you owe. Personal loans are used for different purposes, including consolidating debt through refinancing or paying for home improvements. The average term length of a personal loan is around five years.

What Are The Differences Between The Two?

A car loan is usually for a smaller amount of money. Personal loans are granted for larger amounts of money. You can use them for multiple purposes, including debt consolidation, home improvement projects, or other purchases. Also, a personal loan can have a shorter repayment period than a car loan.

A car loan is only for purchasing vehicles. Car loans also come with the added benefit of depreciation. Your lender considers it when setting up the payments. The main benefit of getting a personal loan is the lower interest rate. A car loan usually comes with a higher interest rate than a home equity loan.

A car loan is an installment loan that requires a monthly payment. The interest rate varies depending on your credit score and other factors. Borrowers with excellent credit could get lower rates than someone with poor credit or no credit history at all.

Car loans and personal loans are ways individuals can borrow money for different purposes. However, they are very different. According to Lantern by SoFi, “Checking your auto refi rates comes with no application fee or obligation.” If you’re thinking about auto loan refinancing with Lantern, contact them now.