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 December 10th, 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
Latitude New and Used Car Loan
From 6.99% (fixed)
8.1%
$5,000
1 to 7 years
$10
$295
Finance a range of vehicles including cars, motorbikes, boats and caravans.
Apply online to finance a new or used motor vehicle and receive a response in 90 seconds. You will receive a competitive tailored rate of between 6.99% p.a. to 14.99% p.a.
IMB New Car Loan
5.89% (fixed)
6.24%
$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.
Stratton Finance New Car Loan
From 5.14% (fixed)
5.8%
$18,000
1 to 7 years
$8.90
$457 (for private seller vehicles this fee is $608)
Fixed or variable rates starting from 5.14% 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.
RACV New Car Loans
From 5.99% (fixed)
6.55%
$15,000
1 to 7 years
$0
$399
Benefit from 5-hour pre-approval.
A competitive rate car loan from RACV with no monthly fees.
Australian Military Bank Car Loan
From 5.71% (fixed)
6.57%
$1,000
1 to 7 years
$10
from $100 to $500
You'll receive a fixed rate between 5.71% p.a. and 8.66% p.a. based on your personal credit history
A flexible loan to help you finance a car, motorbike or boat up to five years old.
Loans.com.au - New Car Loan
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.
Westpac Car Loan
From 8.49% (fixed)
9.67%
$10,000
1 to 7 years
$12
$250
Use a new or used car as security.
A flexible loan thats lets you benefit from a car search tool as well as the option to borrow extra for on-road costs.
St.George Secured Personal Loan - Fixed Rate
From 8.49% (fixed)
9.6%
$3,000
1 to 5 years
$12
$195
You'll receive a fixed rate from 8.49% p.a. based on the value of your car
Get a competitive rate and apply for a larger loan up to $80,000 when you attach a new or used car as security to the loan.
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.
MyState Bank Secured Personal Loan
From 7.99% (variable)
8.96%
$10,000
1 to 10 years
$10
$200
Your choice between secured or unsecured.
Apply for a loan up to $75,000 and benefit from loan terms up to 10 years.

Compare up to 4 providers

Rates last updated December 10th, 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
Harmoney Unsecured Personal Loan
From 6.99% (fixed)
7.69%
$5,000
3 to 5 years
$0
$500 (Upfront fee)
You'll receive a fixed rate between 6.99% p.a. and 26.95% p.a. based on your risk profile.
Apply for a loan up to $70,000 and repay your loan over 3 or 5 years terms.
Citi Personal Loan Plus
From 8.99% (variable)
9.96%
$5,000
3 to 5 years
$10
$199
You'll receive a variable rate between 8.99% p.a. and 17.99% p.a. (9.96% p.a. to 18.91% p.a. comparison rate) based on your risk profile
A credit limit up to $75,000 that you can continue to draw down over terms up to 5 years.
ANZ Fixed Rate Personal Loan
12.45% (fixed)
13.32%
$5,000
1 to 7 years
$10
$150
You'll receive a fixed rate of 12.45% p.a.
Apply for up to $50,000 to use for a variety of purposes without needing to add security. Available to self-employed applicants.
RateSetter Unsecured Personal Loan - 3yr Fixed
From 8.11% (fixed)
8.71%
$2,001
0.5 to 5 years
$0
$89
You'll receive a fixed rate from 8.11% p.a. based on your risk profile
A flexible loan with amounts from $2,001 and terms starting from 6 months. Interest and comparison rates calculated for a loan term of 3 years.
Latitude Personal Loan (Unsecured)
From 13.99% (fixed)
15.19%
$3,000
2 to 7 years
$13
$250 (Loans under $4000 - $140)
You'll receive a fixed rate between 13.99% p.a. and 29.99% p.a. based on your risk profile
Apply for what you need from $3,000 and use it for a range of purposes. Flexible repayments options.
HSBC Personal Loan
From 8.5% (fixed)
9.06%
$5,000
1 to 5 years
$5
$150
You'll receive a fixed rate between 8.5% p.a. and 16.99% p.a. based on your risk profile
An unsecured personal loan with a tailored, fixed rate where you can make additional and early repayments without penalty.
ING Personal Loan
8.99% (fixed)
9.13%
$5,000
2 to 5 years
$0
$100
You'll receive a fixed rate of 8.99% p.a.
Benefit from no ongoing fees, no early repayment fees and flexible loan terms on amounts up to $30,000.
Westpac Unsecured Personal Loan
12.99% (fixed)
14.14%
$4,000
1 to 7 years
$12
$0
You'll receive a fixed rate of 12.99% p.a.
Benefit from the security of a fixed rate with the flexibility of additional repayments. Existing Westpac customers may qualify for discounts. Note: $250 establishment fee waived if you apply before 20 December 2018.
Latitude Low Rate Personal Loan (Unsecured)
10.99% (fixed)
12.21%
$20,000
2 to 7 years
$13
$250
You'll receive a fixed rate of 10.99% p.a.
A secured or unsecured loan available to homeowners with a large minimum borrowing amount of $20,000. Benefit from flexible repayments and fast approval.
Pepper Money Unsecured Fixed Rate Personal Loan
From 9.99% (fixed)
9.99%
$5,000
1 to 7 years
$0
$0
You'll receive a fixed rate between 9.99% p.a. and 27.99% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no monthly or application fees.
NAB Personal Loan Unsecured Fixed
Headline rate 13.49% (fixed)
14.36%
$5,000
1 to 7 years
$10
$150
You'll receive a fixed rate between 11.49% p.a. and 18.99% p.a. based on your risk profile
An unsecured loan up to $55,000 you can use for a range of purposes and pay off over up to 7 years.
SocietyOne Unsecured Personal Loan
From 7.5% (fixed)
9.51%
$5,000
2 to 5 years
$0
3% (of loan amount)
You'll receive a fixed rate between 7.5% p.a. and 19.99% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.
NOW FINANCE Personal Loans
From 8.95% (fixed)
10.56%
$5,000
1.5 to 7 years
$13
$495 (Based on $10,000)
You'll receive a fixed rate between 8.95% p.a. and 16.95% p.a. based on your risk profile
Apply for loans from $5,000 and get a dedicated loan manager. No security required.
Australian Military Bank Fixed Rate Personal Loan
From 7.93% (fixed)
8.77%
$1,000
1 to 5 years
$10
from $100 to $500
You'll receive a fixed rate between 7.93% p.a. and 18.87% p.a. based on your risk profile
An unsecured loan with a low minimum borrowing amount and flexible repayment options.
CUA Unsecured Fixed Rate Personal Loan
11.99% (fixed)
11.99%
$5,000
1 to 7 years
$0
$0
You'll receive a fixed rate of 11.99% p.a.
An unsecured loan from $5,000 with no monthly or establishment fees and flexible repayments.
CUA Discount Fixed Personal Loan (Loans over $30,000)
10.99% (fixed)
10.99%
$30,000
1 to 7 years
$0
$0
You'll receive a discounted fixed rate of 10.99% p.a.
Receive a discounted rate for borrowing over $30,000 and benefit from features such as no monthly fees and flexible repayments.
St.George Unsecured Personal Loan - Fixed Rate
From 12.99% (fixed)
14.06%
$2,000
1 to 5 years
$12
$0
You'll receive a fixed rate between 12.99% p.a. and 19.99% p.a. based on your risk profile
A low minimum borrowing amount of $2,000 to fund a range of purposes. Note: $195 establishment fee waived if you apply before 20 December 2018.
RACQ Bank Unsecured Personal Loan
12.95% (variable)
13.25%
$3,000
5 years
$0
$200
You'll receive a variable rate of 12.95% p.a.
A low minimum borrowing amount of $3,000 that you can use for a range of purposes. Benefit from member discounts and flexible repayments. Only available to QLD residents
MyState Bank Unsecured Personal Loan
12.99% (variable)
16.42%
$3,000
1 to 7 years
$10
$200
You'll receive a variable rate of 12.99% p.a.
Apply for up to $50,000 and benefit from features such as fast approval, free online redraws and no penalties for early repayment.
ANZ Variable Rate Personal Loan
15.99% (variable)
16.84%
$5,000
1 to 7 years
$10
$150
You'll receive a variable rate of 15.99% p.a.
A flexible loan with amounts starting $5,000 that offers flexible repayments and a redraw facility.
NAB Personal Loan Unsecured Variable Rate
Headline rate 12.69% (variable)
13.56%
$5,000
1 to 7 years
$10
$150
You'll receive a variable rate based on your risk profile. The headline rate is 12.69% p.a.
An unsecured loan up to $55,000 you can use for a range of purposes. Benefit from fee-free additional repayments and a redraw facility.
CUA Unsecured Variable Personal Loan
11.89% (variable)
11.89%
$5,000
1 to 7 years
$0
$0
You'll receive a variable rate of 11.89% p.a.
Borrow from $5,000 with the option for flexible repayments and no monthly fees.
CUA Discount Variable Personal Loan (Loans over $30,000)
10.89% (variable)
10.89%
$30,000
1 to 7 years
$0
$0
You'll receive a discounted variable rate of 10.89% p.a.
Borrow over $30,000 and receive a discounted interest rate. No monthly fees and a redraw facility also available.
Australian Military Bank Variable Rate Personal Loan
From 7.88% (variable)
8.72%
$1,000
1 to 7 years
$10
from $100 to $500
You'll receive a variable rate between 7.88% p.a. and 18.82% p.a. based on your risk profile
An unsecured loan with flexible repayment options and a low minimum borrowing amount.
Pepper Money Unsecured Variable Personal Loan
From 9.99% (variable)
9.99%
$5,000
1 to 7 years
$0
$0
You'll receive a variable rate between 9.99% p.a. and 27.99% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Make extra repayments and repay early at any time.

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

Was this content helpful to you? No  Yes

Related Posts

Car Loan Offers

Important Information*
Latitude New and Used Car Loan

You'll receive a fixed rate between 6.99% p.a. and 14.99% p.a. based on your risk profile
Apply for a loan from $5,000 to finance a new or used car. Flexible repayments and options to finance a classic car.

Loans.com.au - New Car Loan

You'll receive a fixed rate of 5.44% p.a.
Finance a new car and benefit from features such as fast approval, no ongoing fees and an optional balloon payment.

Stratton Finance New Car Loan

You'll receive a fixed or variable rate depending on the lender you are approved with
Apply for up to $100,000 and use cash or trade in a vehicle to use as a deposit. Optional balloon payment available.

Beyond Bank Low Rate Car Loan "Special Offer"

You'll receive a fixed rate of 5.69% p.a.
Take advantage of a competitive rate, pre-approval and no early repayment fees when you finance a car under two years old.

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.
Ask a question
Go to site