If you are looking to purchase a new vehicle or upgrade your current vehicle, you may be considering getting a loan. Financing is a great way to get a car quickly, however there are a few disadvantages to getting a loan, and there are also different types of loans to consider, such as personal loans versus auto loans, or bank loans versus dealership loans. It is ultimately based on your situation, but to help you decide which way to go, here is a list of the pros and cons of two different types of car loans:

1. Personal loan pros

One of the highlights of a personal loan is that you don’t have to worry about a down payment, making it easier to buy directly from private vehicle owners. There are also not going to be any limits or restrictions on which types of vehicles you can purchase. Because you’ll be dealing with someone privately, there is a lower risk of repossession, should you find yourself in that situation.

2. Car loan pros

Getting a car loan will help you build your credit which can be beneficial for even bigger purchases down the road, like buying a home. With a financing plan, the interest rates are generally lower than a personal loan. It’s also easier to qualify for a car loan because of the collateral involved.

3. Personal loan cons

Dealing with private lenders can be harder to qualify for and often lead to higher interest rates, especially if you don’t have the best credit history.

4. Car loan cons

Different financial institutions usually have certain requirements and limits on the type of vehicle you can purchase, so this will narrow down your options. They also require a down payment and will ask for proof of car insurance. If you for any reason are not able to make your monthly payments, the lender will repossess your vehicle.

In conclusion, whether you have enough funds saved for a down payment and are okay with some of the risks associated with an auto loan, or you’re looking for something more flexible in terms of the type of car you want to purchase and don’t have enough for a down payment, choosing the type of loan you go ahead with is a big decision and you’ll have to choose confidently based on your circumstances.