Can I Use a Personal Loan to Buy a Car?
Yes, you can use a personal loan to buy a car. Personal loans give you the funds directly that can be used for the purchase independently without collateral security.
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These loans come with benefits like quick fund disbursement, lenient eligibility criteria, and more. You can use a personal loan to purchase a car as long as you satisfy the loan requirements set forth by the lender. But should you? Let’s see.
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Can I Use a Personal Loan to Buy a Car?
While auto loans are commonly used for vehicle purchases, personal loans are getting more recognition due to their flexibility. You can certainly use personal loan to buy cars. These loans usually come with versatile terms and can be tailored to fit your budget. Also, they can be ideal if you are purchasing from a private seller or simply don’t prefer to make a down payment.
Unlike auto loans, which are secured by the car, personal loans are usually unsecured. This means you don’t need to put up the car as collateral, which reduces the risk of confiscation if you run into financial trouble.
With that said, there are certain drawbacks as well that you should be aware of.
But first, let’s understand which is better: an auto loan or a personal loan to buy a car!
Personal Loan vs. Auto Loan: Key Differences
Having understood our query of ‘can you use a personal loan to buy a car’, let’s take a look at some of the core differences between personal loans and auto loans -
| Aspect | Personal Loan | Auto Loan |
|---|---|---|
| Collateral | Mostly unsecured (no collateral needed) | Secured by the vehicle (car can be seized in case of repayment failure) |
| Interest Rates | Generally higher due to being unsecured | Typically lower as the loan is secured by the car |
| Purpose | Versatile — can be used for various needs like debt consolidation, home improvements, and more | Specifically for purchasing a vehicle |
| Loan Term Up to | 48 months | 60 months |
| Down Payment | Generally not required | Required — at least 20% of the car’s value |
| Application Process | Involves a credit check and financial assessment | Often processed through the dealership — similar credit check and financial assessment |
| Interest Rate* | Starting from 2.59% (fixed rate) and 4.74% (reducing rate) | Starting from 1.89% (fixed rate) and 3.61% reducing rate |
*For reference only. Actual rates may vary as per your profile.
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How to Use a Personal Loan to Buy a Car?
If you’re wondering how can you use a personal loan to buy a car, here’s a step-by-step summary for the same -
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Set a Budget
To apply for a loan, first you will need to set up a budget. This way, you will get an idea of the price. Don’t forget to consider fees and additional costs. Moreover, look for vehicles that fit your budget and needs.
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Evaluate Your Financial Situation
Make sure your credit Score is in good shape as this will affect the interest rate and terms of your personal loan. You should determine how much you can afford to borrow and repay. Consider both the loan payments and other car-related expenses like insurance, maintenance, and fuel.
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Research Personal Loan Options
Next, shop around to find the best interest rates and terms with monthly repayments that you can easily afford. Pay attention to the annual percentage rate (APR), repayment period, and any fees associated with the loan.
Click here to explore the best personal loan options.
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Apply for a Personal Loan
Finally, prepare the necessary documents, such as proof of income, credit history, and personal identification to apply for a personal loan. This information will help the bank run a credit check and assess your risk as a borrower.
With online platforms like Policybazaar.ae, you can easily apply for a personal loan online. Click here to get started.
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Get Approved and Receive Funds
After getting the approval, you will receive the money in your bank account.
Note: Remember to review the loan agreement carefully before signing. Make sure you understand the repayment terms and conditions.
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Purchase the Car
With the funds provided, you can use personal loan to buy car directly or through a dealership.
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Repay the Loan
Follow the repayment schedule outlined in your loan agreement. You can set up automatic payments (if feasible) to avoid missing due dates.
Note that if you fail to make the payment on time, a late fee will be charged. Moreover, missed payments can damage your credit score, which can impact your application for future loans.
Thus, budget for loan payments alongside your other expenses to ensure timely repayment.
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Keep Records
You should keep records of your loan payments and any correspondence with your lender. It’s also a good idea to maintain records of car-related expenses and maintenance for future reference.
Pros and Cons of Using a Personal Loan to Buy a Car
Using a personal loan to buy a car has several advantages and disadvantages. Here’s a detailed breakdown of both -
| Pros | Cons |
|---|---|
| Fast access to cash | Shorter terms |
| No collateral or down payment | Higher interest rates |
| Flexibility | Limited availability |
Pros Explained
- The application process for personal loans is straightforward. It involves fewer steps compared to applying for a specialized auto loan.
- Personal loans can be used for any purpose, so you’re not restricted to using the funds solely for the vehicle.
This can be quite useful if you need extra money for other expenses related to the car purchase such as insurance, registration, regular maintenance, and so on.
- Since personal loans are unsecured, you don’t have to put up the car or any other asset as collateral. This reduces the risk of losing the vehicle if you fail to repay the loan.
- You can avoid putting down 20% (or more) of the car's purchase price to secure a better loan.
Cons Explained
- Auto loan terms can go up to 5 years, while personal loans usually have shorter repayment terms (up to 4 years). So when you use personal loan to buy cars, it can lead to higher monthly payments compared to auto loans.
- Because personal loans are unsecured, they pose a higher risk to your lender. This leads to higher interest rates on personal loans.
- Depending on your credit profile and financial situation, you might not be able to borrow as much with a personal loan as you could with an auto loan.
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Where to Get a Personal Loan to Buy a Car?
Policybazaar UAE offers several advantages, particularly if you are seeking convenience, competitive rates, and comprehensive support while getting a loan.
Here’s why you might consider using Policybazaar.ae for this purpose -
- Easy Comparison of Car Loans and Personal Loans: If you are open to both car loans and personal loans, you can easily compare the best options on our platform. This way, you can choose the best financing method for your car purchase.
- Competitive Rates: The loans on our platform are available at attractive rates. You can compare multiple lenders to get a range of loan offers, potentially securing a lower interest rate than you might find with a single lender.
- User-Friendly Interface: We have a user-friendly interface that simplifies the loan application process. You can explore the top plans, apply for a loan online, track your application status, and get offers — all through our platform.
- Personalized Loan Offers: Based on your financial profile and requirements, we can help you tailor loan offers to fit your specific needs, such as the loan amount, repayment period, and interest rate.
Important Things to Think About When Financing a Car in UAE
Whether you are applying for a car loan or a personal loan to buy car in UAE, there are a few factors you must keep in mind -
- Compare the interest rates
- Repayment tenure
- Calculate the EMIs
- Read the loan’s terms and conditions
When to Use a Personal Loan for a Used Car or New Car?
A personal loan isn’t the first thought of most buyers, but it can make sense in certain scenarios. For instance, if you’re getting a budget-friendly car but find the loan down payment inconvenient, a personal loan can be better.
Here’s a guide to help you determine when it might be appropriate to use a personal loan for getting a new or a used car:
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You have an Excellent Credit Score
If you have a strong credit profile, you might be able to secure a personal loan with favorable interest rates. You can also consider becoming prequalified for a loan from a few lenders before filing a formal application. Without affecting your credit, you can evaluate actual offers side by side and determine if a personal loan is the best option.
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Want to Avoid Dealership Financing
By using a personal loan, you can bypass dealership financing. This can give you more negotiating power and potentially better terms when buying the car. Also, a personal loan can simplify the financing process compared to the often more complex terms of auto loans.
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You are Buying a Used Car
Personal loans don’t have any restrictions regarding the age, mileage, or condition of a used car, which might be the case with car loans. This flexibility can be advantageous when buying a used vehicle.
Furthermore, you can cover additional expenses like insurance, registration fees, or even initial maintenance with a personal loan.
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You Want to Avoid Secured Loans
Since personal loans are generally unsecured, you won’t have to risk the car or any other asset as collateral. This can be particularly appealing if you prefer not to have a vehicle as security.
If you have any more queries, you can look at the most frequently asked questions related to the use of personal loan to buy a car:
Frequently Asked Questions
Yes, although whether the impact is positive or negative will depend on how you handle the loan. Timely payments can enhance your credit score, while missed or late payments can bring it down.
This depends on your preferences in terms of loan collateral, strictness of eligibility requirements, ease of getting funds, and more.
Yes, you can use a personal loan to buy a car in case the car you are buying does not meet the criteria for a traditional auto loan or if you want to avoid dealership financing.
Generally, an auto loan is better suited for buying a car. This is because it offers lower interest rates compared to personal loans as the former are secured by the vehicle.
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