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car-loans-vs-personal-loans

Car loans vs personal loans

Need financing for a car? Find out whether a personal loan or a car loan is preferable for you.

Car financing is a common type of lending that can help you purchase a new vehicle. There are a few options available, so it is important to work out whether you can get more value for money with a car loan or a general personal loan.

This guide will explain the differences between these two loan types and includes a calculator to help you work out exactly how much money you can save by opting for one over the other. Remember that you have the freedom to compare options until you’ve found the right one for you, and that the first option you see might not be the best one for your circumstances.

What’s the difference between a car loan and a personal loan?

The exact terms of your financing will depend on your chosen lender and product, but you can generally expect to find the following features with each type of loan.

Car loans

These are dedicated loans designed to cover only the cost of a car and related expenses such as licensing and registration. Most, but not all, are secured loans.

  • Interest rates. Rates will be more competitive if your loan is secured. If you choose dealership finance, your rate will be noticeably lower (around 2%) but you’ll generally have to pay a balloon payment.
  • Secured. Car loans use the vehicle you’re borrowing money for as collateral. This means you can access lower rates, but if you default on the loan the lender may be able to claim the car.
  • Application. You need to supply more information, specifically about the vehicle, when you apply. This can include the make, model and VIN/Chassis number.
  • Restrictions. There are various restrictions with car loans. For example, you may not be able to buy a used car with the loan depending on its age.

Personal loans

Personal loans are considerably more flexible and you can shop around to find terms and conditions that may be preferable for you.

  • Use of funds. You can generally use the approved funds for any purpose you have, including purchasing a car. You can even use part of the loan amount to purchase the car and another part for a different purpose.
  • Unsecured. While car loans are typically secured, in that they use the car itself as collateral, unsecured personal loans do not require you to put up any collateral. This may reduce your risks, but generally comes at the cost of higher rates.
  • Application. You need to list the purpose of the loan, but this can be quite general. For example, you may list debt consolidation, travel or large purchase as a reason.

You might essentially think of car loans as “premade packages”, and personal loans as an option you can adjust and tailor to your needs. The pros and cons of car loans vs personal loans depend on your situation and needs.

Is a personal loan or a car loan preferable for me?

You should always look at the full terms and conditions of each loan you’re considering when deciding if it’s right for you, because not all car loans are alike and the terms of personal loans can vary widely.

  • Are you expecting your financial situation to change? If you’re anticipating a change in your financial situation in the near future, there’s a good chance a personal loan is preferable for you. An unsecured loan may carry less risk in an uncertain future and if you opt for variable rates, you’ll likely be able to take advantage of additional repayments without penalty.
  • Do you know what car you want to buy? Pre-approval is generally only available with car loans, so if you want to shop for a car knowing how much you have to spend, you may want to opt for a car loan.
  • Are you buying a used car? Buying used instead of new can be an effective way of saving money, but depending on the vehicle you might not be able to find a car loan, and will have to go for a personal loan instead. For example, some car loans will require the vehicle to be less than two years old while personal loans will not have any such restrictions.
  • Do you have bad credit? Bad credit car loans are available, but you’ll find more options with an unsecured bad credit personal loan.
  • Do you want to detail your car? It can be costly to make modifications to your vehicle, whether it’s just a new coat of paint or as extensive as changing the body of the car, and many car lenders will not let you add this cost onto your loan. With a personal loan, you can borrow however much you like for different purposes, so you can add this cost onto the loan amount yourself.

At the end of the day, the most effective way to compare loans is by looking at specific options side by side. It can be a good idea to use a calculator to work out value for money more precisely.

Compare car loans and personal loans

Rates last updated June 24th, 2018
$
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Monthly Service Fee Application Fee Product Description Monthly Repayment
IMB New Car Loan
5.99% (fixed)
6.34%
$2,000
1 to 7 years
$0
$250
Borrow as little as $2,000 at a competitive fixed rate
Finance a new car up to two years old. Competitive 5.99% p.a. rate available to all approved applicants.
CUA Secured Fixed Car Loan
6.79% (fixed)
6.92%
$5,000
1 to 7 years
$0
$0
A competitive car loan for new or used vehicles up to 7 years old that offers flexible repayment options and no account keeping fees.
NRMA New Car Loan
From 5.99% (fixed)
6.53%
$5,000
1 to 7 years
$0
$380
Purchase a new car with an NRMA Car Loan with a fixed rate term and no monthly fees. Pre-approval available within 5 business hours.
Stratton Finance New Car Loan
From 5.29% (fixed)
6.56%
$18,000
1 to 7 years
$8.90
$459.20
Fixed or variable rates starting from 5.29% p.a.
Apply for up to $100,000 and have up to 7 year(s) to repay. You can use cash or trade in a vehicle to use as a deposit.
Beyond Bank Low Rate Car Loan
From 5.69% (fixed)
5.97%
$25,000
1 to 7 years
$0
$175
Offset your interest with a Car Budget Account.
Take advantage of a competitive rate, pre-approval and no early repayment fees when you finance a car under two years old.
Loans.com.au - New Car Loan
From 5.44% (fixed)
5.99%
$5,000
3 to 5 years
$0
$400
Optional balloon payment available to reduce your repayments.
A competitive rate car loan suitable for a new cor used car.
Bank Australia Car Loan
6.45% (fixed)
6.66%
$1,000
1 to 7 years
$0
$150
Waived establishment fee for safe or green-rated cars.
A competitive rate and the ability to offset your car’s carbon emissions for the loan term.
RACV New Car Loans
From 5.99% (fixed)
6.53%
$15,000
1 to 7 years
$0
$380
Benefit from 5-hour pre-approval.
A competitive rate car loan from RACV with no monthly fees.
MyState Secured Personal Loan
From 7.99% (variable)
8.96%
$10,000
1 to 10 years
$10
$200
Apply for a loan up to $75,000 and benefit from loan terms up to 10 years. Your choice between secured or unsecured.
Heritage Bank Car Loan
From 6.99% (fixed)
7.62%
$5,000
1 to 7 years
$5
$200
Suitable for purchasing new or used cars up to 5 years old.
Apply for up to $100,000 to finance a new or used car at a competitive fixed rate.
IMB Secured Personal Loan
6.89% (fixed)
7.24%
$2,000
1 to 5 years
$0
$250
Secure this loan with a car and use the funds for any purpose.
Competitive 6.89% p.a. rate available to all approved applicants. Loan amounts up to $60,000 available.
NRMA Used Car Loan
From 6.99% (fixed)
7.54%
$5,000
1 to 7 years
$0
$380
Finance a used car with NRMA and benefit from a fixed rate term and no monthly fees. Pre-approval available within 5 business hours.

Compare up to 4 providers

Rates last updated June 24th, 2018
$
Name Product Interest Rate (p.a.) Comparison Rate (p.a.) Min Loan Amount Loan Term Monthly Service Fee Application Fee Product Description Monthly Repayment
HSBC Personal Loan
From 9.5% (fixed)
10.06%
$5,000
1 to 5 years
$5
$150
A competitive fixed interest rate loan with the option to make extra repayments. Rates range from 9.5% p.a. to 15.99% p.a. based on your credit history.
Harmoney Unsecured Personal Loan
From 6.99% (fixed)
7.69%
$5,000
3 to 5 years
$0
$500 (Upfront fee)
Interest rates are tailored to each applicant individually, and start from as low as 6.99% p.a. to 26.95% p.a.. based on your credit history.
Citi Personal Loan Plus
From 8.99% (variable)
9.96%
$5,000
3 to 5 years
$10
$199
Borrow up to $75,000 to use for a range of purposes. You’ll receive a rate of between 8.99% p.a. and 17.99% p.a. depending on your risk profile. (Comparison Rate of 9.96% p.a. to 18.91% p.a..)
RateSetter 3-Years Personal Loan
From 8.42% (fixed)
10.97%
$2,001
0.5 to 5 years
$0
$75
RateSetter offers loans with terms ranging from 6 months to 5 years and comparison rates from 6.05% p.a. - 11.39% p.a. based on your risk profile.

Interest and comparison rates calculated for a 3-year loan term.
SocietyOne Unsecured Personal Loan
From 7.5% (fixed)
9.51%
$5,000
2 to 5 years
$0
3% (of loan amount)
Based on your risk profile, you will receive a tailored rate between 7.5% and 20.49% with a SocietyOne personal loan.
CUA Unsecured Fixed Rate Personal Loan
11.99% (fixed)
11.99%
$5,000
1 to 7 years
$0
$0
Apply for a loan up to $60,000 and keep repayments manageable with a competitive fixed rate.
Pepper Money Unsecured Fixed Rate Personal Loan
From 9.99% (fixed)
9.99%
$5,000
1 to 7 years
$0
$0
Apply for up to $50,000 and receive conditional approval within minutes. Interest rates range from 9.99% p.a. to 21.74% p.a. The rate you are approved for depends on individual circumstances.
CUA Discount Variable Personal Loan (Loans over $30,000)
10.89% (variable)
10.89%
$30,000
1 to 7 years
$0
$0
Apply for a loan over $30,000 and enjoy a discounted interest rate
Wisr Personal Loan
From 8.5% (variable)
9.36%
$5,000
3 to 5 years
$0
$595
Get a personalised interest rate between 8.5% p.a. and 18.5% p.a. and use your funds for any purpose.
NOW FINANCE Personal Loans
From 7.95% (fixed)
9.42%
$5,000
1.5 to 7 years
$13
$395 (Based on $10,000)
Get rewarded with a low interest rate for your good credit history. Rates from 7.95% p.a. to 16.95% p.a. depending on your credit score.
MyState Unsecured Personal Loan
12.99% (variable)
16.42%
$3,000
1 to 7 years
$10
$200
Apply for up to $50,000 and make additional repayments at any time without penalty.
Heritage Bank Standard Personal Loan
10.5% (fixed)
11.13%
$5,000
1 to 5 years
$5
$200
A flexible personal loan where you can choose a fixed or variable rate and make extra repayments at any time.
Latitude Personal Loan (Unsecured)
From 13.99% (fixed)
15.19%
$3,000
2 to 7 years
$13
$250 (Loans under $4000 - $140)
An unsecured loan with a tailored rate from 13.99% p.a. to 29.99% p.a. designed for multiple purposes including renovating, buying a car or travelling.

Compare up to 4 providers

Step-by-step guide to finding the right type of loan

You might try the following steps to find a loan that works for you. Note that everyone’s circumstances are different and these steps may be considered guidelines.

If you are already certain whether a car loan or personal loan is right for you, then you can only compare those types of financing. If you’re unsure, it can be a good idea to compare both car and personal loans using the steps below.

  1. Head to finder.com.au to compare different loans and assemble a list of likely options.
  2. Go through the car loan and personal loan options in the table above
  3. Enter the interest rate, fees and terms into the calculator below to see which one is more affordable.
  4. Adjust the terms to see if you can save on either option.
  5. Decide which loan is more affordable.

Frequently asked questions about personal loans vs car loans

What should I know about used car loans?

Used car loans may carry higher interest rates to compensate for the reduced value of the vehicle over time, and there will be restrictions on the age of the car.

Can I use the loan for non-vehicle expenses?

Car loans are for cars only, while personal loans may be spent at your discretion. Consider the cost of car insurance, licensing and registration, fuel, maintenance, repairs and related costs as well as the price tag of the vehicle itself.

Will I need to provide details of the vehicle for a personal loan?

No. It’s standard practice for lenders to ask about the purpose of the personal loan, but no specific vehicle details will need to be supplied unless you apply for a car loan.
Image: Shutterstock

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Car Loan Offers

Important Information*
IMB New Car Loan

Borrow up to $75,000 for a new car up to two years old. Competitive 5.99% p.a. rate available to all approved applicants.

Stratton Finance New Car Loan

Apply for up to $100,000 and have up to 7 year(s) to repay. You can use cash or trade in a vehicle to use as a deposit.

NRMA New Car Loan

Purchase a new car with an NRMA Car Loan with a fixed rate term and no monthly fees. Pre-approval available within 5 business hours.

Loans.com.au - New Car Loan

This car loan is for new cars and offers a low fixed rate and no ongoing fees.

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