If you’re looking to buy a car and don’t have the cash on hand to do so outright, you might like to consider taking out a loan. There are a few key differences between car loans and personal loans that borrowers should be aware of before taking out either type of loan.

Pros of getting a car loan

Lower interest rates

Car loans often come with lower interest rates than personal loans. This means that you’ll end up paying less interest over the life of the loan.

Potentially higher loan amounts

You may be able to borrow more money for a car loan than you could for a personal loan. This could come in handy if you’re looking to finance a more expensive vehicle.

Shorter repayment terms

Car loans typically have shorter repayment terms than personal loans. This means that you’ll be out of debt sooner and can begin saving up for your next car sooner.

Cons of getting a car loan

Higher monthly payments

The shorter repayment term of a car loan means that your monthly payments will be higher than they would be with a personal loan. This could make it difficult to make your payments if you’re on a tight budget.

Risk of repossession

If you default on your car loan, the lender has the right to repossess your vehicle. This is not the case with personal loans, which puts your car at risk if you’re unable to make your payments.

Pros of getting a personal loan

Lower monthly payments

The longer repayment term of a personal loan means that your monthly payments will be lower than they would be with a car loan. This could make it easier to make your payments if you’re on a tight budget.

No risk of repossession

If you default on your personal loan, the lender does not have the right to repossess your vehicle. This puts your car at less risk if you’re unable to make your payments.

Cons of getting a personal loan

Higher interest rates

Personal loans often come with higher interest rates than car loans. This means that you’ll end up paying more interest over the life of the loan.

Potentially lower loan amounts

You may be able to borrow less money for a personal loan than you could for a car loan. This could limit your options if you’re looking to finance a more expensive vehicle.

Longer repayment terms

Personal loans typically have longer repayment terms than car loans. This means that you’ll be in debt for a longer period of time and will have to wait longer to save up for your next car.