The short answer to this question is an emphatic no. Personal loans and car loans vary greatly from lender to lender and you need to do a lot of research to make sure you don’t pay too much. As you will soon come to realise, interest rates do not mean everything and it is quite possible to obtain a personal loan at a higher rate of interest that ends up costing you less in the long run.
But before we get to that let’s take a look at some personal loan essentials.
Before deciding which personal loan or car loan is the best one for you, take a few steps backward and think about your circumstances. Sure, you might be in a good position to repay a loan quite easily at the moment, but have you considered what would happen if you lost your job or suffered a reduction salary? Although you may not want to think about it, you should have an exit strategy if your personal circumstances were to go pear shaped. In other words, if you are buying a car for example, make sure you can sell the car in an emergency and repay the debt.
After you have determined the most comfortable repayment schedule, see whether it is possible to take the loan over a shorter term so you can pay off quicker. Another alternative is to investigate whether or not it is possible to make extra payments and pay off your home loan sooner without any penalties.
After you have decided how much you can afford it is time to look at the real cost of loans and how you can make the best comparisons.
It is easy to get caught up comparing personal loans and car loan is simply by looking at the interest rates. Unfortunately, the real cost of a personal loan is not necessarily indicated by the interest rate as the following example demonstrates. Say you opt for a personal loan of $20,000 over 5 years with an interest rate of 12.5%. In this case the minimum monthly repayment would be $445.32. Now if the lender charges a $10 per month account keeping fee, as many do, this increases the repayment to $455.32 per month effectively changing the interest rate to 13.52%! Compare this with a lender for the same amount of money who charges 13% but does not have any monthly account keeping fees. In this case the lender with the higher nominated interest rate would in fact be cheaper.
You can see from the above example that the only real way to compare personal loans is to work out the minimum monthly repayment that is required inclusive of all ongoing fees and charges and calculate the total amount of money you would have to repay over the full term of the loan. By using this total you will be able to easily compare personal loans across a broad range of lenders.
Don’t get caught out by choosing the car loan with the cheapest rate, do some comparisons first and make sure you take into account all fees and charges.