buying-car

Buying a Car with a Personal Loan

Need to finance a car purchase? Find out if a personal loan is worth it.

There are a few financing options you have to choose from if you want to buy a car. While you might immediately consider which car loan would be best for you, you may also want to consider a secured or unsecured personal loan. These loans can give you different benefits to a car loan. Find out what they are in this guide.

Personal Loans vs Car Loans: The basics

FeaturePersonal LoanCar Loan
Cars you can finance Any vehicle New and used up to a certain age
Pros
  • Flexibility with the car you want to finance
  • Range of loan options
  • Can use the funds for additional purposes
  • Designed to purchase a car
  • Can apply for higher loan amount
  • Competitive rates
  • Access to additional add-ons such as warranty
 Cons
  • Higher interest rates than car loans
  • Eligibility requirements may be stricter
  • Restrictive on the type of car you can purchase
  • You can't use the loan for additional purposes

Citi Personal Loan Plus

Citi Personal Loan Plus

from

11.99 % p.a.

variable rate

from

12.48 % p.a.

comparison rate

  • Loan amounts from $5,000
  • Offers a reusable credit facility
  • Repay over 5 years
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100% confidential application

Citi Personal Loan Plus

Apply for a Citi Personal Loan Plus and get competitive interest rate offer with a reusable credit facility.

  • Interest rate from: 11.99% p.a.
  • Comparison rate: 12.48% p.a.
  • Interest rate type: Variable
  • Application fee: $0
  • Minimum loan amount: $5,000
  • Maximum loan amount: $75,000
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Comparison of Personal Car Loan Interest Rates

Rates last updated July 22nd, 2017
$
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Application Fee Monthly Repayment Product Description
Citi Personal Loan Plus
From 11.99% (variable)
12.48%
$5,000
3 to 5 years
$0 ($199 fee waived)
Borrow up to $75,000. All approved applicants will receive the advertised variable rate of 11.99% p.a.
RateSetter 2-Year Personal Loan
From 4.69% (fixed)
7.11%
$2,001
2 to 2 years
$0 (Upfront fee $250 for loan terms of 2 years and above)
This peer-to-peer loan is only available for a 2-year term at the rate of 4.69% p.a.
RateSetter Personal Loan
From 8.46% (fixed)
8.97%
$2,001
0.5 to 5 years
$0 (Upfront fee $250 for loan terms of 2 years and above)
Ratesetter allow you to get a personalised rate based on your credit score.
NOW FINANCE Personal Loans
From 8.95% (fixed)
10.42%
$4,000
1.5 to 7 years
$395 (Based on $10,000)
Get rewarded with a low interest rate for your good credit history.
SocietyOne Unsecured Personal Loan
From 7.9% (fixed)
9.92%
$5,000
2 to 5 years
3% (of loan amount)
Interest rates for a 3 year loan range from 7.9% p.a. to 10.90% p.a. Comparison rate from 9.92% p.a. to 13.63% p.a. for good credit scores A and AA
CUA Discount Fixed Personal Loan (Loans over $30,000)
From 10.99% (fixed)
10.99%
$30,000
1 to 7 years
$0
Take advantage of a competitive fixed rate and no monthly fees when you borrow over $30,000
Pepper Money Unsecured Fixed Rate Personal Loan
From 9.99% (fixed)
9.99%
$5,000
1 to 7 years
$0
Apply for up to $50,000 and receive conditional approval within minutes.
Latitude Personal Loans (Unsecured)
From 13.99% (fixed)
15.2%
$3,000
2 to 7 years
$250 (Loans under $4000 - $140)
An unsecured loan designed for multiple purposes – renovating, buying a car or travelling. Funds can be in your count in as little as 24 hours.
bcu Unsecured Multipurpose Loan
From 8.94% (variable)
9.85%
$4,000
1 to 5 years
$200
A flexible unsecured or secured personal loan with a competitive rate.
QT Mutual Bank Personal Loan
From 12.95% (variable)
13.54%
$3,000
5 years
$395 (establishment fee)
You can use this personal loan to buy just about anything: a new boat, home renovations, a holiday or even to consolidate existing debt. Only available to Queenslanders

Compare up to 4 providers

How does a personal loan work to finance a car?

Personal loans work in a very similar way to car loans to finance a car, with a few notable differences. The same as with a car loan, you apply with a personal lender for the amount you need (this amount can include purposes outside of your car finance, which car loans don't generally allow). A kew difference here is you don't need to supply details of the vehicle, you simply need to tell the lender what you plan to do with the funds.

Once you've received the loan amount you use it to purchase the vehicle yourself along with anything else you needed the loan for. Loan terms can be for between one and seven years and you can generally borrow between $3,000 and $70,000.

What are the benefits of using a personal loan?

While a car loan may be better suited in certain situations, personal loans do offer a range of benefits to those looking to finance a vehicle:

  • Flexibility with approved funds. The amount you can borrow with a car loan is generally tied to how much the car is. However, a personal loan is not, allowing you to borrow additional funds for insurance, modifications or even to consolidate other debt.
  • Buy a used car. While some car loan lenders will allow you to purchase a used vehicle (provided it's under a certain age), you can finance any car you want with a personal loan. This includes classic vehicles and used cars over the age limit.
  • Range of lenders. You may find a larger range of lenders and loan options if you opt for an unsecured personal loan from a bank rather than a car loan.

Buying situations and the financing options to consider

Not sure what type of finance to opt for? Consider the following situations:

  1. Buying a new car from a dealership. Here it may be better to opt for a car loan or dealership finance, unless you want to borrow above the cost of the car. You will be able to get a more competitive rate and may have access to convenient features.
  2. Buying a used car from a private seller. Depending on the age of the vehicle, you may be able to choose between a personal loan or a car loan. Keep in mind the restrictions and the costs of the loan when making your decision.
  3. Buying an encumbered vehicle. Some lenders will not finance a vehicle that is currently encumbered, that is, under a car loan.

How much does a personal loan cost?

Personal loans come with a variety of fees and charges that should be considered before you apply:

  • Interest rate. This rate can either be fixed or variable and can range from 7% p.a. to 20% p.a. depending on the type of loan you opt for and your borrowing situation.
  • Establishment fees. You may need to pay a fee to set the loan up. This can be called loan establishment fee, loan application fee or loan origination fee, but it will essentially be the same. Once the loan is approved the fee will be added to your borrowing amount.
  • Ongoing fees. Personal loans may come with monthly or annual fees that will increase your ongoing repayments. Make sure to consider these when comparing your options.
  • Late payment and default fees. If you make a loan repayment late or fail to make a repayment you will be charged additional fees. These may be daily late fees, direct debit dishonour fees and more. Make sure you get in touch with your lender if you think you'll be late with a repayment to avoid these.

What are the drawbacks of a personal loan?

Choosing a personal loan to finance a car isn't all positive. Here are some of the drawbacks to consider:

  • Costs. Compared to a car loan, you will generally find personal loans have higher interest rates.
  • No special car offerings. As car loans are designed for car purchases, lenders offer features such as car-buying services or car insurance add-ons which you can consider. These generally aren't available with personal loans.

How to decide what's right for you

Finding the right financing option comes down to costs, features and flexibility. First, make sure the loan type suits your purchase. Then, consider the features that are available with each loan, do these suit your needs? After this compare the costs of the most suitable loan options and select the most affordably on your budget.

Picture: Shutterstock

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