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Auto purchase personal loans are essentially personal loans used to cover the cost of buying a car or truck. Personal loans are one-time, fixed-rate loans that are repaid in monthly installments over a specified time period.
When you apply for a personal loan to pay for your car or truck, you are asking a lender, such as a bank or credit union, to lend you money to cover the total or partial cost of the vehicle. If you are approved, you will repay the personal loan plus interest in installments over time. This can be an appealing option because, depending on your credit history, income, and a number of other factors, you may be able to receive a lower interest rate than you would with a credit card.
Unsecured personal loans do not require collateral, making them an appealing option for people purchasing a car who do not want to risk their vehicle as collateral.
Because personal loans are typically unsecured, lenders put a high priority on an applicant’s financial profile, such as credit score and debt-to-income ratio, when deciding eligibility. Borrowers with good credit will have lower APRs than those with average or bad credit. APR, or annual percentage rate, is the cost of borrowing a loan over the period of a year. A lower APR indicates a lower total loan cost.
Most people cannot afford to buy a car outright, so they must borrow money to purchase a vehicle. One of the main reasons for choosing a personal loan to pay for a car is that you don’t need a down payment unlike most auto loans. Some auto loans also have higher minimum loan amount restrictions than personal loans, so personal loans may be a better option if you only need a small loan amount. For example, if you want to buy a used vehicle for $10,000 and have $8,000 in cash, you may utilize a personal loan to cover the remaining $2,000, something you might not be able to finance with an auto loan.
Another common reason people decide to use a personal loan to buy a car is that auto loan lenders have age limits on how old a car can be before it can be financed. The vehicle also needs to be in good working order. If you wish to restore an older classic car, an auto loan may not be suitable.
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