I am in need of a personal loan to help out with financial matters and I applied for a car loan from USAA and I got a good interest rate (7.44 % versus 11.25 % for a personal loan). Is it okay if I choose the auto loan since it will be cheaper in the long run even though I am not getting a car?
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{ 6 comments… read them below or add one }
If you want a "car loan" you have to take out the loan and put collateral on it (usually a car)
The reason that the interest rate is lower on a vehicle loan is because it is a secured loan – in the event of default, the bank has collateral that they can repossess and reduce their losses.
That isn’t true with a personal loan with no collateral. If you default, the chances of recovering the full balance are much more difficult. As such, the bank has to charge a higher interest rate because it is a higher risk of loss.
That being said, you don’t have to necessarily buy a new vehicle to get a secured loan. If you already have a vehicle or some other piece of collateral (such as a watercraft, a towing trailer, etc) with a clear title and no lien – you can put that piece of collateral on the loan and get the secured rate. The amount you’ll be able to borrow at the secured rate will obviously depend on the value of the collateral.
Good luck! Hope this helps
No you cant
You can not. With a car loan your car is the colatteral. With out the car there is none, so they will not give it you you.
May I suggest a line of credit?
Yes,But Why? U Want To Screw Up Your Credit?
You have been approved for a car loan… that involves going to a dealer picking out the car and making your lender the owner of a car until you are done paying it off. (The Title goes to the lender as collateral..)
I don’t think this idea of yours will work.
No. You have to give the title to the car to the lender. How can you turn over the title to a nonexistent car?
The reason that the rate is lower on a car loan is because of the collateral (the car.) The rate on a personal loan is higher because you are not putting up any collateral.