Car loans vs personal loans

Car-n't decide? Let's crunch the differences.

14% of Australians have taken out a car loan according to Finder's Consumer Sentiment Tracker, but how does that compare to using a personal loan to purchase your car?

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 usually 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.
  • Security. 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. You can also 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. While this reduces your risks, they generally come with higher rates.
  • Application. You need to list the purpose of the loan, but this can be quite general. For the purchase of a car, simply listing "large purchase" as a reason may be sufficient.

Essentially, you could think of car loans as “pre-made packages”, while personal loans are more flexible and can be tailored to your needs.

What's a balloon payment?

Depending on the loan you take out, you may have the option of making a balloon payment when the loan ends. A balloon payment is a single lump sum payment that pays off the rest of the loan. These can help you save money on interest, but they also require you to pay a big sum of money at the end so can be harder on the budget. Not every loan or product offers this, and you should be sure to check if your loan automatically comes with a balloon payment so that you're not caught out. We've included an example of a balloon payment further down, or you can read more about it here.

Which is better, a car loan or a personal loan?

Whether a car loan or a personal loan is better will depend on your personal situation. The pros and cons outlined above will affect different people differently.

Car LoanPersonal Loan
Don't want to spend as much money over the life of the loanAre buying an older car that may not qualify as loan security
Are looking to buy a new, or newer model of carDecide that you want a bit of extra cash to use for another purpose
Haven't got a perfect credit historyHave excellent credit and can secure a competitive personal loan

Example: Charlotte's in the market for a used car

Charlotte knows she wants to buy a car but she's not sure what one yet. To keep costs down, it'll probably be a used car. She wants to get the funds sorted first though.

Her best option is an unsecured personal loan, which doesn't require her to use the car as security. It also won't have any conditions on the age of the car like a car loan would.

She takes out a $20,000 personal loan and is approved for an 8% interest rate. Her loan term is 5 years and with a $10 monthly fee, she'll be paying $416 per month.

Charlotte ends up buying a car for $15,000, but because it's a used car it could use some love. But good news, she can use what's left of her personal loan on repairs and upgrades.

* This is a fictional, but realistic, example.

Example: Chris has found the perfect new car

Chris has been shopping around for a new car and has found the perfect one! He applies for a $30,000 car loan, which is secured against his car so he knows that if he misses repayments he could end up losing the car.

He gets a 9% interest rate to pay off over 5 years. This could work out as $623 per month, but he opts for a loan with a balloon payment.

He chooses to make a final lump sum balloon payment of $5,000, so he only makes repayments towards $25,000. His monthly repayments are now $519 a month instead.

His total loan repayments end up being $36,138 rather than $37,366.

* This is a fictional, but realistic, example.

Questions to ask yourself before submitting a loan application

If you're wondering what you should ask yourself before you click "submit" on that loan application, you might try asking yourself these questions first.

  • 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. This means that 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. So, you'll should possibly 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 a 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, 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. And you can add the cost of modifications onto the loan amount yourself.

Compare car loans and personal loans

For more information on any of these loans, simply click "More Info" to be taken to our review page. To apply for a loan, click "Go to site".

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1 - 15 of 91
Name Interest Rate (p.a.) Comp. Rate (p.a.) Application Fee Monthly Fee Monthly Repayment
IMB New Car Loan
IMB logo
Fixed1 - 7 Years $2,000 - $125,000
Interest Rate (p.a.)
6.24%
Comp. Rate (p.a.)
6.59%
Application Fee
$274.78
Monthly Fee
$0
Monthly Repayment
$619.01
Go to siteMore Info
You'll receive a fixed rate of 6.24% p.a.
A low minimum borrowing amount of $2,000 that you can use to purchase a new car or one that's up to two years old.
loans.com.au - New/Demo - Variable Rate
loans.com.au logo
Variable3 - 7 Years $5,000 - $150,000
Interest Rate (p.a.)
6.24%
to 7.39%
Comp. Rate (p.a.)
7.37%
to 8.5%
Application Fee
$400
Monthly Fee
$8
Monthly Repayment
$630.83
Go to siteMore Info
Stratton Finance New Car Loan
Stratton Finance logo
Fixed1 - 7 Years $10,000 - $300,000
Interest Rate (p.a.)
6.52%
to 18%
Comp. Rate (p.a.)
6.95%
to 23%
Application Fee
$395
Monthly Fee
$0
Monthly Repayment
$625.27
Go to siteMore Info
You'll receive a fixed rate from 6.52% p.a. depending on the lender you are approved with.
Apply for up to $300,000 and use cash or trade in a vehicle to use as a deposit. Optional balloon payment available.
OurMoneyMarket New Car Loan ($5,000-$100,000)
OurMoneyMarket logo
Fixed1 - 7 Years $5,000 - $100,000
Interest Rate (p.a.)
6.57%
to 18.99%
Comp. Rate (p.a.)
7.19%
to 21.78%
Application Fee
$250
min.
Monthly Fee
$0
Monthly Repayment
$622.82
Go to siteMore Info
Simplify New Car Loan
Simplify Finance logo
Fixed1 - 7 Years $10,000 - $300,000
Interest Rate (p.a.)
6.19%
to 18%
Comp. Rate (p.a.)
6.6%
to 23%
Application Fee
$395
Monthly Fee
$0
Monthly Repayment
$622.21
Go to siteMore Info
OurMoneyMarket Used Car Loan ($5,000-$100,000)
OurMoneyMarket logo
Fixed1 - 7 Years $5,000 - $100,000
Interest Rate (p.a.)
6.57%
to 18.99%
Comp. Rate (p.a.)
7.19%
to 21.78%
Application Fee
$250
min.
Monthly Fee
$0
Monthly Repayment
$622.82
Go to siteMore Info
RACV New Car Loans
RACV logo
Fixed1 - 7 Years $5,000 - $150,000
Interest Rate (p.a.)
7.29%
to 16.99%
Comp. Rate (p.a.)
8%
to 17.77%
Application Fee
$499
Monthly Fee
$0
Monthly Repayment
$635.67
Go to siteMore Info
You'll receive a fixed rate from 7.29% p.a.
A larger loan of $5,000 or more to help you buy a new or used car. 5-hour pre approval available and no ongoing fees.
loans.com.au - Variable Rate Used Car < 5 years
loans.com.au logo
Variable3 - 7 Years $5,000 - $150,000
Interest Rate (p.a.)
7.39%
to 7.39%
Comp. Rate (p.a.)
8.52%
to 8.64%
Application Fee
$400
Monthly Fee
$8
Monthly Repayment
$641.54
Go to siteMore Info
Stratton Finance Used Car Loan
Stratton Finance logo
Fixed1 - 7 Years $10,000 - $300,000
Interest Rate (p.a.)
6.52%
to 18%
Comp. Rate (p.a.)
6.95%
to 23%
Application Fee
$395
Monthly Fee
$0
Monthly Repayment
$625.27
Go to siteMore Info
You'll receive a fixed rate loan from 6.52% p.a. with a comparison rate of 6.95% p.a.
A used car loan of up to $300,000 with quick approval times and balloon payment options.
Simplify Used Car Loan
Simplify Finance logo
Fixed1 - 7 Years $10,000 - $300,000
Interest Rate (p.a.)
6.19%
to 18%
Comp. Rate (p.a.)
6.6%
to 23%
Application Fee
$395
Monthly Fee
$0
Monthly Repayment
$622.21
Go to siteMore Info
RACV Used Car Loans
RACV logo
Fixed1 - 7 Years $5,000 - $150,000
Interest Rate (p.a.)
8.49%
to 16.99%
Comp. Rate (p.a.)
9.21%
to 17.77%
Application Fee
$499
Monthly Fee
$0
Monthly Repayment
$647.01
Go to siteMore Info
You'll receive a fixed rate from 8.49% p.a.
Benefit from no ongoing fees, 5-hour approval and a 21-day satisfaction guarantee. Interest rate discounts for members.
loans.com.au - Fixed Rate Used Car < 3 years
loans.com.au logo
Fixed3 - 7 Years $5,000 - $150,000
Interest Rate (p.a.)
7.59%
to 8.79%
Comp. Rate (p.a.)
8.72%
to 10.04%
Application Fee
$400
Monthly Fee
$8
Monthly Repayment
$643.41
Go to siteMore Info
loans.com.au - New/Demo - Fixed Rate
loans.com.au logo
Fixed3 - 7 Years $5,000 - $150,000
Interest Rate (p.a.)
6.89%
to 8.09%
Comp. Rate (p.a.)
8.02%
to 9.2%
Application Fee
$400
Monthly Fee
$8
Monthly Repayment
$636.87
Go to siteMore Info
You'll receive a fixed rate of 6.89% p.a. based on your risk profile
Finance a new car and benefit from features such as fast approval, no ongoing fees and an optional balloon payment.

loans.com.au - Variable Rate Used Car < 3 years
loans.com.au logo
Variable3 - 7 Years $5,000 - $150,000
Interest Rate (p.a.)
7.39%
to 7.39%
Comp. Rate (p.a.)
8.52%
to 8.64%
Application Fee
$400
Monthly Fee
$8
Monthly Repayment
$641.54
Go to siteMore Info
loans.com.au - Fixed Rate Used Car < 5 years
loans.com.au logo
Fixed3 - 7 Years $5,000 - $150,000
Interest Rate (p.a.)
7.69%
to 8.89%
Comp. Rate (p.a.)
8.82%
to 10.14%
Application Fee
$400
Monthly Fee
$8
Monthly Repayment
$644.35
Go to siteMore Info
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Name Interest Rate (p.a.) Comp. Rate (p.a.) Application Fee Monthly Fee Monthly Repayment
Harmoney Unsecured Personal Loan
Harmoney logo
Finder award winner
Fixed3 - 7 Years $2,000 - $70,000
Interest Rate (p.a.)
5.76%
to 24.03%
Comp. Rate (p.a.)
6.55%
to 24.98%
Application Fee
$275 - $575
Monthly Fee
$0
Monthly Repayment
$623.70
Go to siteMore Info
NAB Personal Loan Unsecured Fixed
NAB logo
Fixed1 - 7 Years $5,000 - $55,000
Interest Rate (p.a.)
8.49%
to 20.49%
Comp. Rate (p.a.)
9.88%
to 21.78%
Application Fee
$250
Monthly Fee
$15
Monthly Repayment
$654.15
Go to siteMore Info
NOW Finance No Fee Unsecured Personal Loan
NOW Finance logo
Finder award winner
Fixed18 Months - 7 Years $5,000 - $50,000
Interest Rate (p.a.)
6.75%
to 26.95%
Comp. Rate (p.a.)
6.75%
to 26.95%
Application Fee
$0
Monthly Fee
$0
Monthly Repayment
$615.26
Go to siteMore Info
OurMoneyMarket Unsecured Low-Rate Personal Loan ($5,000-$75,000)
OurMoneyMarket logo
ExclusiveFinder award winner
Fixed1 - 7 Years $5,000 - $75,000
Interest Rate (p.a.)
6.57%
to 18.99%
Comp. Rate (p.a.)
7.19%
to 21.78%
Application Fee
1.50% - 6%
min. $250
Monthly Fee
$0
Monthly Repayment
$627.42
Go to siteMore Info
Finder Exclusive: Limited time only. $100 eGift Card for borrowers with Excellent Credit who apply via Finder by 28 February and settle the loan by 15 March.
Employed applicants with an Equifax credit score of 500 or above are eligible. No ongoing or early exit fees. Loan amounts range from $5,000 to $75,000, and up to $100,000 for home improvement projects and motor vehicles.
Latitude Variable Rate Personal Loan
Latitude Financial Services logo
Variable2 - 7 Years $5,000 - $70,000
Interest Rate (p.a.)
9.49%
to 29.99%
Comp. Rate (p.a.)
10.37%
to 30.69%
Application Fee
$0
Monthly Fee
$13
Monthly Repayment
$653.57
Go to siteMore Info
Special offer: $395 establishment fee waived for approved personal loan applications for a limited time. Latitude may withdraw offer at any time. T&Cs apply.
ANZ Fixed Rate Personal Loan
ANZ logo
Fixed1 - 7 Years $5,000 - $50,000
Interest Rate (p.a.)
7.49%
to 19.99%
Comp. Rate (p.a.)
8.18%
to 20.58%
Application Fee
$150
Monthly Fee
$10
Monthly Repayment
$636.70
More Info
Special Offer: Until 13 April, eligible borrowers of an ANZ personal loan can get $250 cashback and $150 application fee waived. Terms and conditions apply.
ANZ Variable Rate Personal Loan
ANZ logo
Variable1 - 7 Years $5,000 - $50,000
Interest Rate (p.a.)
7.49%
to 19.99%
Comp. Rate (p.a.)
8.18%
to 20.58%
Application Fee
$150
Monthly Fee
$10
Monthly Repayment
$636.70
More Info
Special Offer: Until 13 April, eligible borrowers of an ANZ personal loan can get $250 cashback and $150 application fee waived. Terms and conditions apply.
NAB Personal Loan Unsecured Variable Rate
NAB logo
Variable1 - 7 Years $5,000 - $55,000
Interest Rate (p.a.)
8.49%
to 20.49%
Comp. Rate (p.a.)
9.88%
to 21.78%
Application Fee
$250
Monthly Fee
$15
Monthly Repayment
$654.15
Go to siteMore Info
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Frequently asked questions about car loans vs personal loans

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Journalist

Elizabeth Barry is an experienced journalist with over 10 years of expertise in personal finance, contributing to outlets like the ABC, Sydney Morning Herald, and 7News. She holds a Master of Arts in Creative Writing and a Bachelor of Arts in Communication from the University of Technology Sydney, and has earned multiple award nominations, including a Highly Commended recognition at the 2017 Lizzies. Elizabeth began her career at Finder in 2013, progressing through roles to become Lead Editor, where she oversaw a wide range of personal finance coverage until 2024. See full bio

Elizabeth's expertise
Elizabeth has written 210 Finder guides across topics including:
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