When buying a vehicle, one of the first financial decisions you’ll need to make is how to pay for it. Two common options in Australia are a car loan vs personal loan. But which one is right for you?
Car loans are secured and usually offer lower interest rates, but they’re limited to vehicle purchases. Personal loans offer more flexibility but tend to come with higher rates since they’re often unsecured.
Understanding the key differences between a personal loan, and a car loan is crucial to making a decision that suits your financial circumstances and long-term goals. This guide will help you weigh the pros and cons of each option so you can confidently choose the best way to finance your next vehicle.
Quick Overview: Car Loan vs Personal Loan
If you’re planning to borrow money for a car, it’s worth knowing the difference between a car loan and a personal loan. Each option has its perks, depending on your financial situation and how much flexibility you need.
- Car Loan: Specifically designed for vehicle purchases. Typically secured against the car, offering lower interest rates but with less flexibility.
- Personal Loan: Can be used for any purpose, including buying a car. Usually unsecured, offering more flexibility but often at a higher interest rate.
Get Personalised Car Finance Support with Car Buyers Assist in Australia
Looking to buy a new or used car and unsure whether to choose a car loan or personal loan? At Car Buyers Assist, we take the confusion out of car finance. Our team compares options and tailors finance solutions that suit your budget, lifestyle and goals. We help you understand the pros and cons of every option so you can make the right move.
Call us at 1300 879 222 or visit our Contact Us page to speak with an expert today.
What Is a Car Loan?
A car loan is designed specifically for purchasing a vehicle. It’s usually a secured loan, meaning the car acts as collateral. If you don’t meet repayments, the lender can repossess the vehicle.
Key Features:
Here’s what typically comes with a car loan:
- Lower interest rates due to the loan being secured
- Fixed loan terms, usually between 1 to 7 years
- Can be used for new or used cars
- Often a faster approval process, especially when buying from a dealership
Pros:
A car loan might work for you for these reasons:
- Lower interest rates: You’ll generally pay less over the life of the loan.
- Higher borrowing power: Lenders are more comfortable offering larger amounts since the car secures the loan.
- Predictable repayments: Fixed rates help with budgeting.
- Smooth dealership experience: Car loans are often designed for use with dealers, speeding up the buying process.
Cons:
However, there are a few downsides to consider:
- Vehicle restrictions: Some lenders won’t approve loans for older or high-kilometre vehicles.
- Secured loan risk: If you default, the car can be repossessed.
- Limited use: Funds can only go toward the car, not extras like rego or insurance.
What’s a Personal Loan?
A personal loan offers more flexibility. It’s commonly unsecured, which means you’re not putting up an asset as security. You can use it for just about anything, from buying a car to paying for a holiday or covering unexpected expenses.
Key Features:
Here’s what to expect with a personal loan:
- Can be used for multiple purposes
- Higher interest rates due to increased lender risk
- No collateral required
- May offer flexible repayment options
Pros:
Some reasons you might choose a personal loan are:
- Greater flexibility: Use the funds for the car and other related costs like rego, insurance or upgrades.
- No vehicle restrictions: Ideal for buying older vehicles or purchasing from private sellers.
- No repossession risk: Your vehicle won’t be taken if you default (though your credit score will take a hit).
Cons:
A few things to keep an eye on are:
- Higher interest rates: You may pay more overall compared to a secured car loan.
- Tougher approval criteria: Lenders often want stronger credit scores and proof of steady income.
- Lower borrowing limits: You might not be able to borrow as much as with a car loan.
Which Loan Option Is Right for You?
Choosing between a car loan and a personal loan comes down to your priorities:
- Go with a car loan if you want lower rates and are buying a new or used car from a dealership.
- Opt for a personal loan if you need flexibility or plan to buy an older car from a private seller.
Consider how much you want to borrow, whether you’re okay with using your car as security and the kind of repayment structure that fits your financial situation best.
Can You Refinance Later?
Yes! Whether you choose a personal loan or a car loan initially, you can often refinance later if your circumstances change. Refinancing may help you lower interest rates, extend your repayment period or switch loan types entirely.
At Car Buyers Assist, we can help you assess your refinancing options and decide if switching loans could benefit your financial situation.
Final Thoughts: Choose the Loan That Works for You
Both car loans and personal loans have their place in car financing. What’s most important is choosing a loan that aligns with your financial goals, repayment ability and the type of car you plan to buy.
Still unsure which option suits you best? Let us help.
Speak to the Experts at Car Buyers Assist Today
Don’t leave your car finance decision to guesswork. Contact Car Buyers Assist at 1300 879 222 or visit our Contact Us page for expert advice tailored to your needs.
Whether you’re buying from a dealership or privately, our team will guide you every step of the way to secure the right loan solution. Let’s make your car buying journey simple, affordable and stress-free.