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Difference between Personal Loan vs. Pre-Owned Car Loan

by janeausten
Difference between Personal Loan vs. Pre-Owned Car Loan

With significant delays in the delivery schedule of new cars and the current economic crisis, used cars have become an object of massive desire among people of all economic classes. 

People prefer to buy pre-owned cars of a higher variant than a smaller new car in the same budget. 

Approximately 4.4 million used cars were sold in India in 2021, and only 2.7 million new cards were sold in the same year. 

Buying a car is a significant financial decision, and people often find themself looking for loan options to buy a used car. 

The two most common loans taken for buying a second-hand car are pre-owned car loans and personal loans. 

Here is a quick comparison between both the loan types to help you decide which loan is more suitable for you.

Difference between Personal Loan vs. Pre-Owned Car Loan

Nature of loan:

Pre-owned car loans are secured loans where the purchased car acts as collateral for the loan. On the other hand, personal loans are unsecured loans that do not require the security of any asset. Secured loans are easier to procure than unsecured loans as they come with the backing of an asset. And lenders are more confident about the money they are risking as a loan. 

The interest rate for the loan:

The interest component of a loan makes up a large portion. Of the monthly EMI a borrower pays to the lender. Therefore, the loan with the lowest interest rate often wins over other loans. The interest rate on personal loans can go as high as 25% or even more from some lenders. Muthoot FinCorp offers pre-owned car loans at attractive interest rates starting at only 8.50% per annum. Giving it a clear edge over personal loans due to a lower used-car loan interest rate

Loan amount:

The loan amount offered under personal loans depends on the income level of the borrower. It may or may not be enough to finance the car of your choice. Muthoot FinCorp offers up to 100% loan to value on some car models. It takes away the burden of arranging additional funds beyond the loan amount from the borrower. Customers can get a loan between Rs. 50,000 and Rs. 10 lakhs on their used cars from Muthoot Finance. Which is usually enough to purchase second-hand models of even luxury cars. 

Credit score:

Since personal loans are not backed by an asset, lenders are very cautious while sanctioning a personal loan. They conduct detailed checks on the loan applicant and check his credit score and credit history. Used-car loans are secured loans, and the lender is more comfortable while providing a loan to the applicant. Even if he has a poor credit score or a bad credit history. 

Income of the loan applicant:

The loan applicant’s income plays an important role in personal loans. Lenders prefer to give a personal loan only to applicants having a steady flow of income. Muthoot FinCorp offers no-income base loans under some schemes on used cars. 

Used-car loans from lenders like Muthoot FinCorp come with transparent processing, low-interest rates, and high LTV. Which are not offered by personal loan providers.

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