Personal loans can be used for many things. If youre itching to pay off your auto loan quickly, using a personal loan could be the answer but it could cost you more money in the long run. Weve got some considerations to keep in mind before going through with it.
Taking Out a Personal Loan
Personal loans are offered by direct lenders from credit unions, banks, or online lenders. Some lenders offer loans anywhere from $1,000 to $100,000, with the terms usually dependent on the size of the loan and your creditworthiness. A borrower with a good credit score has a better chance of qualifying for a personal loan.
If you have a less than perfect credit score, qualifying for a personal loan can be tough. Personal loans typically arent secured by anything (like an auto loan where the vehicle secures the loan) installment loans online for bad credit New Mexico. Because of this, lenders may have more stringent requirements to meet.
If you make the cut for a personal loan, you could use that amount to pay off your car loan, make repairs on the vehicle, or just make a sizable dent on your car loan balance. However, you cant use a personal loan as a down payment on a vehicle. Almost every auto lender requires that the down payment amount isnt borrowed money.
Is There a Catch?
If you intend to finish off your auto loan with a personal loan, it may not be a good idea long term.
Personal loans usually come with higher interest rates than auto loans, since theyre not secured by anything. To make up for this risk, most lenders assign higher interest rates on personal loans. The interest rate for these loan types varies they’re generally around 6% to 36%.
It may make sense to use a personal loan to pay off your car if the personal loans interest rate is less than your auto loan. Some car loans can come with interest rates in the double-digits, especially if you had poor credit when you got the vehicle. (more…)