Buying a new car is exciting, but it comes with a host of decisions that go beyond simply choosing a model or colour. Perhaps the most important choice is the type of loan you should get and how much you should realistically borrow.
Before you sign on the dotted line, take the time to compare your options. When choosing between specialised car loans versus personal loans, examine interest rates, fees, and terms. Both come with their own advantages and trade-offs, and understanding these can make the difference between a smooth ride and financial bumps down the road.
The table below compares a range of secured and unsecured car loans.
| Lender | Car Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Interest Type | Vehicle Type | Maximum Vehicle Age | Ongoing Fee | Upfront Fee | Total Repayment | Early Repayment | Instant Approval | Online Application | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.99% p.a. | 7.12% p.a. | $580 | Variable | New | $8 | $400 | $34,791 |
| Promoted | Disclosure | |||||||||
5.95% p.a. | 5.95% p.a. | $579 | Fixed | New | $0 | $0 | $34,757 |
| Promoted | Disclosure | |||||||||
5.95% p.a. | 5.95% p.a. | $579 | Fixed | New, Used | $0 | $0 | $34,757 | Disclosure |
Deciding between a personal loan and a car loan
The main difference between a car loan and a personal loan is that car loans are secured by the vehicle being financed, while personal loans are typically unsecured. Secured options mean that a car loan provider can repossess your car if repayments are not made on time.
As a trade-off, unsecured loans typically come with higher interest rates, and may place more onus on you, the borrower and your credit score, rather than the vehicle. Keep in mind if you default on your repayments the lender can still come after you in other ways, such as through debt collectors and the legal system.
Both types of loans can be used to buy a new or used vehicle, but they work differently. Choosing the right one depends on the type of vehicle you need, how much you can afford, and your future financial plans.
It’s important to remember that personal loans, even those with low rates, can vary widely in terms and conditions. Car loans, on the other hand, often come with more restrictions, so weighing the pros and cons carefully is essential.
See Also: Car Loan Repayment Calculator
Key considerations for financing your vehicle
Before deciding how to finance your next vehicle, you should ask yourself a few important questions:
Have you considered your financial situation?
Unsecured loans typically come with higher interest rates, while secured car loans have lower ones. Higher rates mean a higher repayment, so you will need to factor that in your budget if opting for an unsecured personal loan.
Speaking of, secured car loans typically require you to take out comprehensive car insurance, which is costlier than third party.
Have you decided which car you want?
If you know what you want and how much you can afford, then you're in a good position to open negotiations with lenders. If you know how much you want to borrow, you can apply for pre-approval, which makes things even easier.
Is the car new or used?
While a used car might be cheaper, if it's too old then a car loan provider might not want to fund your purchase. Secured car loan providers typically limit the maximum age of a car to 5-12 years.
If you’re after an older or classic car, this is when a personal loan could come in handy.
How's your credit rating?
There are bad credit car loans on the market, more so than personal loans, because your car acts as collateral. Not only are you probably more likely to be approved for a car loan than a personal loan in these circumstances, but you might get better interest rates, too.
Do you need to fund extra car costs?
Secured car loans typically limit the loan amount to the agreed purchase price. However, cars can come with a bunch of other upfront expenses such as rego and insurance. If you want a little extra, an unsecured car loan might be more likely to fund these extra items.
What are the main differences between car loans and personal loans?
Your exact terms will vary according to your lender, your credit score, and the vehicle you're buying. Most lenders follow the same model, though, so your loan will be easy to predict.
What is a personal loan?
Personal loans are a lot more flexible than car loans because they're not tied to the value of the car. You can also find them online and at credit unions; if you have a great credit rating, you can also get some attractive interest rates.
Lenders look at your rating more closely with a personal loan because it's unsecured. They're relying more on your credit history to make their decision, so sometimes they'll tack on a little bit more interest to cover their risk.
Read more: What does my credit score mean and how does it work?
Personal loans generally take less time to apply for because you don't have to detail and put up the collateral (the car). All you need to declare is the purpose of the loan.
You can use the loan for pretty much anything, not just the car itself. If you want to pay for rego or insurance, your loan can cover this, whereas secured car loans often won't.
Compare personal loans from Australia's major banks, credit unions and non-bank lenders using the table below.
| Lender | Car Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Interest Type | Secured Type | Early Exit Fee | Ongoing Fee | Upfront Fee | Total Repayment | Early Repayment | Instant Approval | Online Application | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.76% p.a. | 5.76% p.a. | $384 | Fixed | Unsecured | $0 | $0 | $275 | $23,066 |
| Promoted | Disclosure | ||||||||
5.95% p.a. | 5.95% p.a. | $386 | Fixed | Unsecured | $0 | $0 | $0 | $23,171 |
| Promoted | Disclosure | ||||||||
5.95% p.a. | 5.95% p.a. | $386 | Fixed | Unsecured | $0 | $0 | $0 | $23,171 |
| Promoted | Disclosure |
What is a car loan?
Car loans are meant to cover the cost of a vehicle, and sometimes, the related cost of registration and licensing. It's not a case of asking "How much can I borrow?" with a car loan. You get car loans from banks, dealerships or online lenders.
Using your car as collateral usually gets you lower interest rates than a personal loan. With unsecured loans, however, you’ll need to ask the lender how much you can borrow
It can take longer to apply for a car loan as you have to supply the lender with the details of the car you're planning to buy, including make, model and condition. But you don’t have to worry, as lenders will usually give you enough time.
Car loans have more restrictions than your average personal loan. They're usually only used for the cost of the car, not modifications and so on. Additionally, if you're buying a used car, you'll probably have things like age limits to stay within.
Comparing personal loans vs car loans
Here’s a quick glance at personal loans versus car loans, outlining their key differences, advantages, and limitations to help you choose wisely
|
Feature |
Personal Loan |
Car Loan |
|---|---|---|
|
Purpose |
Flexible; can be used for anything, including car expenses, rego and insurance |
Primarily for purchasing the vehicle itself |
|
Collateral |
Typically unsecured; no asset required |
Secured; the car acts as collateral |
|
Interest Rates |
May be higher because the loan is unsecured; depends heavily on credit rating |
Generally lower because the loan is secured by the car |
|
Application Process |
Faster; no need to provide car details |
Longer; requires car details like make, model, condition |
|
Availability |
Offered by banks, credit unions, and online lenders |
Offered by banks, dealerships, and online lenders |
|
Restrictions |
Few restrictions on use of funds |
More restrictions; usually only covers the car purchase and related costs; may include age limits for used cars |
|
Credit Consideration |
Lenders rely heavily on credit history |
Credit is considered, but collateral reduces lender risk |
First published in October 2023
