Cars have become a necessity for a family rather than a luxury. People have to travel long distances in most cities, and public transport is often unreliable. However, new cars are not cheap, so most people need access to funds to finance the purchase of a vehicle.
Where can you get funds for buying a car?
There are two options that are available for you — traditional car loans and personal loans. Most lenders offer loans of up to 80% of the market value of a vehicle. Hence, many people turn to personal loans to fully finance the purchase of a vehicle and bear additional costs, like buying accessories or making modifications etc.
The following sections will help you choose the best car loan.
Car loans are secured loans offered by various lenders for the sole purpose of buying a vehicle. These loans require you to put the purchased car as collateral. If you are unable to repay the loan amount, the lender has the right to take away your car to recover the dues.
Personal loans are unsecured loans; this form of financial assistance does not have end-use restrictions. Thus, you can use them for any purpose, including debt consolidation, paying for house renovations or purchasing a new car. These loans generally have higher interest rates compared to secured loans.
Here are some of the salient differences between these two loans:
|Parameters||Car Loan||Personal Loan|
|Loan Purpose||Only for buying a car||You can use the loan amount for anything (there are no end-use limitations)|
|Interest Rates||Typically lower||Typically higher than secured loans|
|Credit Score Requirements||Lenient as it is secured||Generally requires you to have a good credit score|
|Eligibility Criteria||Age limit, minimum income, and credit score (requirements may vary across different loan providers)||Age limit, credit score and minimum income only, and employment status (may vary from one lender to another)|
|Loan term||Usually longer||Usually shorter|
|Down payment||Substantial down payment||No down payment required|
The following are some of the advantages of choosing Navi’s personal loan to buy a car:
No need for a down payment
Even the best car loans require you to pay a down payment, especially if you have a low credit score. With a personal loan from Navi, you can get 100% financing for the vehicle’s cost without making a down payment.
The car’s ownership stays with you
A car loan requires you to hypothecate the car purchased with the lender and submit proof of purchase. A personal loan allows you to retain full ownership of the vehicle. Moreover, you do not have to give it up in case of a default.
Getting an auto loan can be tricky in some cases as lenders are willing to finance only specific models and certain types of vehicles. A personal loan is often the only option when buying a vintage car or a second-hand car. You can also buy any car model as long as you can afford the EMIs.
You do not need to furnish many documents to avail a personal loan. Lenders like Navi require you to submit your Aadhaar and PAN only when applying for a loan.
Online lenders allow you to easily avail a loan via their website or mobile app. The process is entirely digital. Thus, you don’t need to visit a bank or an NBFC and go through the hassles of exhaustive paperwork.
Follow the given steps to get a personal loan for buying a car from Navi:
Download the Navi application from Play Store or App Store.
Open the application and tap on ‘Personal Loan’.
Select the loan amount and EMI, depending on your repayment capacity.
Complete KYC by submitting your Aadhaar and PAN.
Enter details of your bank account, and the money is transferred almost instantly to your bank account.
Car loans and personal loans are the two popular options for financing a car purchase. However, even the best car loans will not provide 100% funding for your car, and your options will be limited. As an alternative, you can choose a personal loan as a flexible means of funding for your new car and additional accessories.
Ans: Some financial institutions request a guarantor for a personal loan in case they are unsure about the borrower’s repayment capacity. Guarantors are responsible for making EMI payments if the borrower is unable to do so.
Ans: You can make repayments for personal loans in the form of monthly EMIs (equated monthly instalments). Many financial institutions require you to set a standing instruction on your bank account to deduct the monthly EMI on a specified date. Customers can also choose to prepay the entire or part of the borrowed amount before the end of the loan tenure.
Ans: Three factors determine the EMI of a loan — the loan amount, interest rate and repayment tenure. Usually, financial institutions have restrictions that prevent this amount from being more than 40-50% of your monthly income. You can use a personal loan EMI calculator to find the right loan amount and tenure for the EMI that you can afford.
Ans: Prepayment refers to paying off a loan in part before the due date as per the EMI schedule. The financial institution may charge an additional fee called prepayment penalty which usually ranges from 2% to 5% of the outstanding loan amount.
Ans: Unlike traditional car loans, personal loans are not secured loans, and thus, there is no risk of the lender taking your car to recover dues. If you default on loan repayment, it will show up on your credit report, adversely affecting your credit score. As a result, you will find it hard to apply for a credit card or a loan in the future.
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