QandAs: Loans

Can I get a personal loan to pay for my car?

Answer:
Sure, you can pay for anything with a personal loan.

Personal loans are a product that are built with the idea that it can be used for anything that the applicant wishes. Should you pay for your car with a personal loan? There are some things to consider when paying for a car with a personal loan.

Personal loans come in several flavors but most of the time they are available in two forms. A payday loan or cash advance and a line of credit are both personal loans. Personal loans could be considered as loans that can be used for anything personal. Often times, your credit card company will issue a line of credit to you in which you can receive cash in exchange for debt on your credit card. Personal loans have high interest rates. They have high interest rates because they are more risky for the lenders. Personal loans are easy to get, there isn't much of an application process in which a lender will analyze one's credit history. So there easy to get and they have high interest rates.

Thus far, I've mentioned the types of personal loans and how they can be used. Lets take a look at an automobile loan. Car loans are loan products specifically built to finance an automobile. These are loans that are structured to set interest rates and set terms according to what most people find favorable when purchasing a vehicle. Most auto loans are for terms of 4 to 5 years and have interest rates built to accommodate the applicant and still please the lender. Car loans have low interest rates. If you have great credit some car dealers have incentive deals with 0%-3% interest rates. Most of the time you'll find rates from 5-10%.

Now that we know the difference between a car loan and a personal loan you should be able to assume that since the interest rates for car loans are significantly lower than personal loans that it would make more sense to finance your car with a car loan rather than a cash advance or credit card or line of credit. You may end up paying significantly more than the car is worth and when it comes time to sell or trade the vehicle in you will likely be upside down or have negative equity in the car which means you'll have to down size again. This is an ongoing process and will only go away once you purchase a car at a good price and are able to receive good financing.


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