Both personal loans and car loans are prominent forms of borrowing in Singapore. One of the major differences between these two loans is – personal loans are unsecured, while auto loans are secured. For a secured loan, you’ll need to provide a collateral in the form of an asset. For an unsecured loan, a collateral is not required. Approval of an unsecured loan will depend on your income and credit history, and not on the value of the asset.
When to Take a Personal Loan
It can be used for several purposes like:
- Wedding expenses
- Medical emergencies
- Home renovation
- Outstanding credit card payments
- Educational expenses
How a Car Loan Can Benefit You
Motor loans are secured loans wherein the vehicle you plan to buy will serve as the collateral. It can be used only to purchase a vehicle. You can repay the loan amount in fixed instalments within a specific tenure you opt for.
The Difference between Personal and Car Loans
The key differences between the two are listed in the table below:
|Personal Loan||Auto Loan|
|Unsecured: You do not need to pledge any asset to get the loan.||Secured: The vehicle you intend to buy will serve as collateral.|
|Interest rates are on the higher side (because these loans do not require any security).||Interest rates are lower (because they are secured loans and the bank can sell your asset if you default on payments).|
|It can be used for multiple purposes.||It can be used only for purchasing a vehicle.|
|Approval for a personal loan involves minimal documentation.||Approval for a car loan involves detailed documentation.|
Types of Auto Loans
- New car loan
- Used car loan
- Commercial car loan
- Car loan refinancing
Types of Personal Loans
- Personal line of credit (Revolving loan)
- Balance transfer
- Debt consolidation plan
Factors to Consider Before Opting for a Term Loan or an Auto Loan
You need to consider factors such as:
- Loan amount: Check the loan amount you qualify for and also the factors affecting how much you can borrow.
- Tenure options: Choose a flexible repayment period that suits your financial situation.
- Interest rate: Select a loan package that comes with an interest rate you can afford to pay.
- Approval time: Compare loans from various banks based on the time they’d take to approve a loan.
- Repayment options: Opt for a loan which allows you to make your repayment in different ways.
- Collateral requirement: Check if you need to pledge a collateral for the loan amount you need.
- Fees and charges: Check for the various charges applicable on the loan you intend to take.
Personal Loan vs. Car Loan: Which Option Works For You?
You can opt for a term loan when you’re in urgent need of cash. You can apply for a motor loan when your sole intention is to purchase a vehicle. However, irrespective of which loan you choose, it is always recommended that you go through the terms and conditions pertaining to the loan. This is because not all auto loans and personal loans are the same; the terms and conditions vary from bank to bank. Mostly, a term loan does not come with a restriction on what the loan amount should be used for. However, do not opt to buy a vehicle using a term loan considering the fact that personal loans charge a higher interest rate in comparison to auto loans. The interest rate for an auto loan could be anywhere between 1.99% p.a. to 3.5% p.a. However, the rate of interest for a term loan could be anywhere between 8% p.a. to 15% p.a. (differs from bank to bank).
Regardless of which loan you take, interest rates and features of a loan vary across financial institutions. Hence, you need to spend some time to research and compare loans offered by multiple banks to see which loan suits your specific needs.