Owning a car reduces your dependence on public transportation—especially in the wake of the pandemic. It also gives you the flexibility to travel at your convenience. However, it is a huge financial decision, and you may not have the entire amount needed to buy the car of your choice. To fund your purchase, you may avail of vehicle finance or opt for a loan against your credit card. Read on to understand both options and make an informed decision.
Car loan
Several financial institutions offer auto loans to help you own your dream vehicle. The entire procedure from application to approval is quick and hassle-free.A car loan is an amount paid by the lender towards the purchase of your vehicle. It needs to be repaid in equated monthly installments (EMIs) over the tenure.
Credit card loan
This is an instant way to access funds to meet any immediate requirements. The loan is provided against the unutilized limit on your credit card. The borrowed amount can be repaid in EMIs over the chosen loan tenure. The money can be used for any purpose including purchasing a car.
Car loan vs. credit card loan
Before you choose between these two options, here are four factors you should consider.
- Interest rate
Generally, the rate of interest on car finance is lower when compared to the credit card interest rate. This not only reduces the EMI but also decreases the interest paid over the entire loan duration.
- Loan amount
You may borrow up to 100% of the ex-showroom price depending on the type of vehicle and car loan eligibility criteria. On the other hand, the credit card loan amount is based on the unutilized balance from the total available limit, which may not be enough to fund the vehicle purchase.
- Collateral
Irrespective of whether you avail of a car loan online or offline, the lender will hold the vehicle as collateral. In case you do not make repayments on time, they may take charge of the car to recover the outstanding amount. In comparison, credit card loans are unsecured and do not require you to mortgage your assets.
- Repayment tenure
The maximum repayment tenure for auto loans is five years. In most instances, credit card loans have shorter repayment tenure, making the EMI amount higher.
From the aspects mentioned above, it is seen that auto loans are more competitive when compared to using your credit card to pay for the car. Leading financial institutions like Mahindra Finance offer vehicle loans with attractive interest rates, minimal documentation, and quick processing. To determine the estimated installment, visit their official website and check the car loan EMI calculatornow.