Is it better to get a personal loan or car loan when buying a vehicle?

I'm trying to decide between a personal loan and car loan for a Toyota. Which one is the better option?

Answer
If your purpose is to buy a car, a car loan is better for you for a few reasons:
First, lenders will charge lower interest rates and fees because they are attaching the risk to an asset — in this case, the car. Having a tangible item that they can repossess and sell if the borrower can’t make payments reduces their risk. And lower risk for the lender means lower rates for the borrower. A personal loan, on the other hand, is unsecured, which means that your lender can’t seize your car.
Second, car loans are generally easier to qualify for than personal loans. They have more forgiving credit requirements because, as mentioned above, lenders can protect themselves by repossessing your car if you default on payments. It’s even possible to qualify for a car loan if you have a lousy credit score or non-existent credit history.
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Jim Donaher
Answered on Mar 08, 2021
Jim Donaher is a freelance writer and manager with over 35 years' experience in the insurance, banking, and investment management businesses. He provides expertise on a range of topics and is able to explain complex industry information in layman's terms. Jim is the author of two books, including Call Him, He's Home: A Guide to Prayer for Regular People and Then Larry Smiled, a novel about life, death, accountability, and salvation. Taormina, Sicily is his happy place!
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