What Banks Give Personal Loans – If you’re in the market for a big-ticket item like a car, you may need a loan to cover the costs. Personal loans and auto loans are two of the most common forms of financing. They can be obtained relatively easily, assuming you meet their respective loan requirements.
So what’s the difference between the two? A personal loan can be used for many different purposes, including buying a car, while a car loan (as the name suggests) is only for buying a vehicle. Each loan type has its own pros and cons; it’s important to weigh and compare them before signing on the dotted line.
What Banks Give Personal Loans
A personal loan provides a lump sum of funds from a lending institution (usually a bank) to the borrower, which the borrower can use at his discretion, for example for a vacation, wedding or home improvement.
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A personal loan can be secured against something of value such as a vehicle or house, and if you fail to repay the loan, the lender can forfeit your assets to cover losses. However, most people opt for an unsecured loan, which means that the loan is made without collateral.
Two key factors that affect the total loan payment are the interest rate and the term of the loan. A personal loan calculator is a helpful tool for determining how these factors will affect the amount you pay each month.
In general, unsecured loans carry higher interest rates than similar secured loans with collateral attached. Unsecured personal loans also have stricter approval requirements, so you’ll need good credit. If you are in poor health, a personal loan may not be an option.
Your credit score affects the loan amount and interest rate, which can be fixed or variable. The better your credit score, the better your borrowing power and the lower your interest rate. Conversely, the worse your credit rating, the lower your ability to borrow and the higher the interest rate.
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Personal loans have fixed repayment periods, measured in months – 12, 24, 36, etc. A longer loan term will lower your monthly payment, but you will pay more interest over the life of the loan. Conversely, a shorter loan term means higher monthly payments but earns less interest overall because you can pay off the principal faster.
Most lenders accept online applications for personal loans, and you can usually get approved for an auto loan on the spot at a car dealership.
An auto loan is secured against the vehicle you intend to purchase, which means the vehicle acts as collateral for the loan. The lender can seize the car if you default on your payments. Loans are paid in fixed installments throughout the loan term. Just like a mortgage, the lender retains title to the asset until you make the final payment.
To determine the best interest rate and loan term for your needs before heading to the dealership, consider trying an auto loan calculator first.
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Given that the lender has financial control over the car — it’s a secured loan — the debt is considered less risky, which often means significantly lower interest rates for the borrower. The interest rate is also fixed, so borrowers are not affected by the rate hikes associated with unsecured personal loans.
Most auto loans are fixed for 36, 48, 60 or 72 months. Just like with personal loans, the shorter the term, the higher the monthly payment and vice versa. A below-average credit history doesn’t necessarily prevent you from getting an auto loan (unlike a personal loan). It also has less impact on your interest or loan amount, depending on the price of the car.
There are various ways to obtain a car loan. Before applying for a business loan, it may be worth investigating whether a local bank or credit union may offer you a better deal.
Whether you choose a personal loan or an auto loan, interest rates and offers vary by institution. So do your homework and shop around to get the best deal. Research banks, credit unions, and other lending platforms to find the best combination of interest rates and loan terms to keep your monthly payments affordable.
The Pros And Cons Of Longer Repayment Terms On Personal Loans
When purchasing a new vehicle, many consumers choose a dealer-financed auto loan because it is quick and easy. But in some cases, it may be more efficient to get a personal loan. To make an informed decision, start by asking yourself the following questions:
Deciding between the two means weighing the pros and cons based on your individual circumstances.
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Offers appearing on this form are from partnerships for compensation. This offset affects how and where the list is displayed. Excludes all offers available on the market. Both personal loans and credit cards offer a way to borrow money and share many of the same standard credit terms. In loan and credit card agreements, you will often find lenders offering financing with fixed interest rates, monthly payments that include principal and interest, late fees, signature requirements, amount limits, and more. Misusing both types of credit can damage your credit rating, leading to problems with getting loans, getting good housing, and finding a job.
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But aside from the similar attributes of personal loans and credit cards, there are some key differences, such as repayment. Let’s explore the definitions and differences between the two, as well as the pros and cons of each.
Before diving into the comparison of the differences between personal loans and credit cards, it’s important to understand one important similarity. The United States and most countries have integrated credit scoring systems that form the basis for credit approval. The three major U.S. credit bureaus—Equifax, Transunion, and Experian—lead the way in establishing credit scoring standards and working with lenders to achieve credit approval.
Credit scores are based on a person’s past credit history, including credit defaults, inquiries, accounts and outstanding balances. Everyone receives a credit score based on this history, which can greatly affect their chances of being approved for credit. Broadly speaking, all the factors a lender considers also affect the interest rate a borrower pays and the amount of principal they are approved for.
Both personal loans and credit cards can be unsecured and secured, which also has an impact on credit terms.
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Paying off credit card balances and paying off personal loans on time both help build your credit score.
Lenders offer a variety of options in the personal loan category that can affect credit terms. Typically, the main difference between a personal loan and a credit card is the long-term balance. Personal loans do not provide ongoing access to funds like credit cards. Borrowers receive a sum of money up front and have a limited time to repay it in full through regular payments before returning the loan. This arrangement typically provides lower interest rates to borrowers with higher credit scores.
Personal loans can be used for a number of reasons. Unsecured loans can provide funds to finance a major purchase, consolidate credit card debt, repair or upgrade a home, or provide financing to fill an income gap. Unsecured loans are not backed by collateral pledged by the borrower.
Home loans, auto loans, and other types of secured loans can also be considered personal loans. The loans will follow the standard credit approval process, but they may be easier to obtain because they are backed by asset guarantees.
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For example, in a home loan or car loan, the lender has the right to repossess your home or car after a certain number of delinquencies. Secured loans usually have slightly better terms because the lender has title, which reduces their risk of default. Here are some pros and cons of personal loans.
Remember, interest is not the only fee to consider in a loan. Lenders also charge fees that may increase the overall cost of the loan. Personal loans usually include an origination fee, and there may be other fees as well.
One notable distinction is the difference between a line of credit (LOC) and a loan. Unlike a loan, a line of credit has built-in flexibility—and that’s its main advantage. The downside is that it usually comes with a higher interest rate.
The LOC is a predetermined loan amount, but the borrower does not have to use it all. Borrowers can draw funds from the line of credit at any time, as long as the terms of the line of credit and other requirements, such as making minimum payments on time, are met.
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LOCs can be secure or non-secure (mostly the latter) and are
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