Personal Loan vs Auto Loan

Personal loans are short-term, unsecured loans for consumers to use as they wish. Unlike other loans, there is no collateral required for a personal loan. It is easier to qualify for a personal loan than any other type of loan like anAuto Loan.
Auto loans are secured loans that are used to finance the purchase of an automobile i.e. a Car, Bus, Auto rickshaw or a Truck, etc. These are secured by the automobile itself and generally have lower interest rates than Personal loans.
Is it better to get a personal loan or an auto loan? There are several factors that go into deciding which type of financing is best for you. In this article, we’ll outline the major differences between the a Personal Loan and an auto Loan and help you decide which option is better.
What is a personal loan?
A personal loan is an unsecured loan given to a person based on his income. There is no collateral is involved in this kind of loan. Personal loans are used generally in times of emergency fund requirements like medical expenses, weddings, tours or travels, to get rid of credit card debt and many more.
It is offered to both salaried and self-employed persons. The eligibility and amount of loan depend upon the employment details like Net monthly income, current EMIs, credit score, residence, Nature of Employment (Salaried/Self-Employed), Age, Employer Details, Existing relationship with the bank, etc.
Interest rates for Personal loans vary from 8-18% and they are offered by PSU Banks, Private Banks, and other NBFCs. The rate of Interest can be flat or floating and differs from bank to bank.
Two of the very important things two consider while checking the personal loan offer from a bank or institution are its Rate of Interest and Processing Fees. The processing fee is a one-time charge that is deducted from the amount approved for the loan.
Here is a list of Banks and NBFCs that offer Personal loans and their tentative interest rates,
Name of Bank/NBFC
Rate of Interest
Processing Fee
State Bank Of India(SBI)
9.60-15.5%
Up to 1.50%
Bank Of India
10.75-12.75%
Up to 2%
Punjab National Bank
9-14.50%
Up to 1.8%
Bank of Baroda
10.50-12.50%
Up to 2%
HDFC Bank
10.50-21%
Up to 2.5%
ICICI Bank
10.5-19%
Up to 2.25%
Axis Bank
12-21%
Up to 2%
Eligibility Criteria and Documents Required for an Auto Loan
Since Personal Loans are unsecured loans the documents required and the eligibility criteria are pretty stringent.
The Eligibility requirement for Personal Loans:
● The age for Salaried Individuals should be between 21-60 years of age and the age for Self-employed individuals should be between 21-55 years of age
● The minimum net monthly take-home income should be Rs. 20,000 for salaried and Rs. 25,000 for Self-employed individuals
● CIBIL or Credit score requirement is above 750 for both Salaried and Self-employed individuals
Documents Required for Personal Loans:
3 Important documents are required for loans to be approved.
● Identity Proof- Aadhaar Card, Passport, Driving license, Voters ID card, PAN card can be used as Identity proof documents.
● Residence Proof- Aadhaar Card, Passport, Driving license, Voters ID card, ration card, Postpaid Telephone Bills, Electricity Bills, Water Bills can be used as Address proof documents.
● Income Proof- Last 6 months Bank statements and Salary slip or Form-16 for Salaried Individuals and last 3 years Audited Financial Statements and Income Tax Returns for Self-Employed Individuals.
Prepayment and Foreclosure for Personal Loans
Each loan is given for a particular tenure like 1-5 years for personal loans, but after availing of the loan if you decide to repay the loan before the tenure then it is called pre-payment or foreclosure.
You can either make a full pre-payment or a part pre-payment. There is penalty and charges involved while you choose to make a prepayment of a personal loan. The charges and penalties vary from bank to bank.

An auto loan is a type of financing that allows people to purchase new or used cars. The bank will normally decide the amount of financing and the processing fee for the loan. The approved amount will be made in the name of the dealer of the car and the borrower has to pay the remaining amount as a down payment.
A Car Loan or Auto loan is a secured loan. It is secured because the car itself acts as collateral and is hypothecated to the bank until all payment is made for the loan.
The rate of interest is typically lower; starting from 7% and the tenure is 1-8 years and varies from case to case.
Unlike a personal loan, you can use it only to purchase a vehicle only and it is offered to anyone who fulfills basic eligibility criteria.
In an auto loan, you have to give a downpayment or the amount is which is not financed by the bank. Because banks offer auto loans up to 70-80% of the value of the car. Now some banks have started financing 100% of the value of the car.
Name of Bank/NBFC
Rate of Interest
Processing Fee
State Bank Of India(SBI)
7.25-7.95%
Zero till 31.12.2021
Bank Of India
6.85-8.55%
Rs.1500-5000
Punjab National Bank
6.55-7.5%
Zero till 31.12.2021
Bank of Baroda
7-9.50%
Rs.1500 Flat
HDFC Bank
7.95-8.30%
Rs.3500-8000
ICICI Bank
7.90-8.80%
Rs.3500-8500
Axis Bank
7.45-14.50%
Rs.3500-7000
Eligibility Criteria and Documents Required for an Auto Loan
To avail of an auto loan you need to be eligible for the loan, some of the eligibility criteria set by banks and other institutions are:
● You need to be a Citizen of India
● You must be 21-75 years of age
● A minimum monthly take-home salary of Rs.20,000/-
● Should have at least 1 year of engagement with the current employer
● Valid Income proof in case of Self-employed individuals like ITR Filling, GST Filling, credit card Payment details
Documents Required:
3 Important Documents are required to avail of Auto loans, they are
Identity Proof- Aadhaar Card, Passport, Driving license, Voters ID card, PAN card can be used as Identity proof documents.
Address Proof- Aadhaar Card, Passport, Driving license, Voters ID card, ration card, Postpaid Telephone Bills, Electricity Bills, Water Bills can be used as Address proof documents.
Income Proof- Bank Statements, Salary Slip, ITR Statements, Form-16 can be used as Income proof documents.

Benefits of Car Loan
● In India, car loans are easily available for those who have a good credit score.
● A new car loan gives you the opportunity to own a luxury sedan or an SUV or a sports car without having to pay a large amount of cash upfront.
● The interest rates on these kinds of loans are lower as compared to personal loans.
● Car loans give consumers more flexibility than cash purchases when buying a car.
Personal Loan vs Auto loan
Let’s compare the pros and Cons of Personal Loans Vs Auto Loans
Personal Loan
Auto Loan
Pros(Benefits)
Pros(Benefits)
A Personal loan can be used for any purpose.
Flexible Repayment Options
Higher amounts of loan available, up to 50 lacs
Unsecured loan so no collateral is required
Auto loans have lower interest rates 7-8.5%
The repayment tenure is high, up to 8 years
Less stringent checks
Lower Processing fees, 0-0.75% of the approved amount
Auto loans are easier to get
Even if you have an average credit score you are most likely to get a car loan
Cons(Downsides)
Cons(Downsides)
Higher Interest Rates
You need Better Credit Score to be eligible for a Personal Loan
More Background check is conducted
The repayment tenure is limited to a maximum of 5 years
Higher Processing Fees, 0-3% of the amount
Lower credit scares either get rejected or offered higher interest rates
The funds can be utilized for buying a vehicle only.
Secured loan and the vehicle is hypothecated to the bank until all repayment is done

You have to give a downpayment for the car loan
Which one is best for you?
With a personal loan, you can buy anything from gadgets to vacations. The loans are easy to get and come with flexible repayment options. You can control the amount you want to borrow from the bank.
But if you are specifically looking for buying a car then you must go for Auto loans as these loans are cheaper and have a longer repayment period.

6. Final Thoughts
A personal loan is used for personal uses like weddings, home renovation,s or vacations. On the other hand, an auto loan is used to buy a vehicle like a car or a motorcycle. So choose carefully and wisely. After reading this article, I hope you have a better understanding of the difference between personal loans and auto loans. Both can be used to finance different types of purposes, but they are very different in their structure and repayment terms.

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