When it comes to a big purchase – for example, a car, we often resort to loans for the financing of the same. Both personal loans and car loans are two of the biggest and most common financing options that are availed by consumers. A personal loan can be used for any purpose. There are no bindings in the case of personal loans. However, car loans are particularly available for car purchases. To have a better understanding, you can check the pros and cons of both products. According to financial experts, it is always recommended to opt for a short-term loan in case you have bad credit. Even though the monthly payments will reduce, the interest rates will be much higher for long-term loans. The interest rates are usually high in case you have bad credit, and long-term loans will further increase it. Negative equity is another risk that comes with long-term loans as well. Negative equity comes into effect when the value of the car is lower than the loan amount. The chances of the car needing repairs during the loan duration also increase. Over a duration of time, wear and tear occur and there are chances of major repairs which could increase the costs as well. When you take a new loan to pay off the outstanding balance on your existing car loan, it is known as car refinancing. You can choose to refinance your car loan if you wish to replace your current loan with better features such as low-interest rates, extended repayment tenures, etc., or simply to change the terms of your current loan.
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