When you’re looking for a new car, you should always think about whether you need finance to buy it and what sort of finance you should go for. While looking at the pros and cons of a personal loan vs car loan, you should look at the amount you can borrow as well as the interest rates and any fees involved. Deciding between a personal loan and a car loan You can use a personal loan or a dedicated secured car loan to finance your new (or used) car. You should look at your needs and your future finances, as well as the type of car you’re looking at. No matter which route you choose, though, you need to go over the terms and conditions of each loan carefully. Before you start your search, ask yourself these questions Is your financial situation likely to change? If you’re expecting a pay rise or promotion in the next year or so, you may be better with a car loan. If you’re not so sure your finances will be great, a personal loan won’t use your car as collateral so it can’t be repossessed if you get into difficulty. Do you have a car in mind? If you have a target and you know how much you should be paying for it, then you’re in a good position for negotiation. A good move is to have pre-approval from a lender so that you don’t waste time looking at expensive cars you might be turned down for. Is the car new or used? Used cars are cheaper, of course, but then if the car is too old or has too many miles on the clock then you may not be able to get a car loan. In these circumstances, it might be best to apply for a personal loan. How’s your credit rating? If you have less–than–brilliant credit, you might find getting a personal loan harder, so having the car act as collateral in a car loan is a wise move. Of course, you have to spend some time looking at and comparing your options. It’s a good idea to use a loan calculator and look at the comparison rates to work out how much your loan will cost you each month and how much it’ll cost in total. While lenders and products vary slightly, personal loans and car loans tend to have some of the same core features. Personal loans Personal loans are more flexible than car loans. You can find them online or in–branch and you can find cheap personal loans without having to use the car as collateral. Personal loans are often unsecured With unsecured loans, lenders are relying on your credit history and financial status to see how risky you are to lend to. However, because they’re unsecured (no collateral), you may face higher interest rates than you’d get with a car loan. They’re easy to apply for Because there’s no need for collateral, you won’t have such a long application process. You just explain what you want the funds for when you make your application. You can use the loan for lots of things You can use personal loans for most reasonable things so when you use one to buy a car, you can also spend it on accessories and modifications for your vehicle, as well as tax and insurance. Whereas a car loan might not let you borrow that much. Car loans A car loan covers the cost of buying a car, as well as registering and licensing it. You can get your loan from your bank, an online lender or a dealership. Car loans have better interest rates You can find cheap car loans because the loan is secured by the vehicle itself, which makes for better interest rates. The application process is longer You need to provide more information on a car loan application—the make, model and condition of the car—so the lender can value it. Most lenders will give you pre–approval for a certain amount so you have time to find a suitable car. There are more restrictions You can only use the car loan to buy a car. Some lenders will cover the cost of taxes as well, but if you’re buying a used car, there may be mileage and age limits on the cars you can choose. How to find the right loan Use a comparison site to find lenders and note down the loans you like the look of and that you’ll qualify for. Pay attention to the term and the comparison rate – which tells you the total cost of the loans by combining the interest rate and the fees into one percentage cost. Use a loan calculator to work out the total cost. Look at the features of the loans and find out what are the ongoing fees, or establishment fees? Is there a big penalty for early repayment? It’s things like this that can decide between your final two or three shortlisted candidates. Pick out which loan is cheapest to service and which meets your needs the most. Don’t have a shortlist of more than two or three lenders or loans. Make the application and wait for the decision. Many lenders have a pre–approval service so you can see if you’ll be accepted and what you’ll pay even before you apply. Your choice here can affect your finances for quite a few years, so don’t rush into anything. Make sure you understand the terms and consequences of the decisions you make and if there’s anything you’re unsure of, talk to the lender before committing to anything. You can research and compare personal loans and car loans from Australia’s banks, credit unions and other lenders at InfoChoice.The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.