Personal and car loan differences explained
Pros and cons of both options
Your guide on how to decide
A lot of people mix up car loans and personal loans or think they’re the same thing.
In fact, a lot of lenders mix them up too.
You’ll see ‘car loans’ advertised that are in fact
personal loans.
But they are different products. If you’re buying a car, knowing the difference matters.
In this article, I’ll explain the ins and outs
of both car loans and personal loans, so you can decide which one to choose.
Car loans are essentially a type of personal loan.
But they have some features
that set them apart from other personal loans.
This big one is security.
With a car loan, the vehicle you’re buying is used to secure the loan.
This means the lender can reclaim the vehicle and sell it if you don’t repay the loan.
This reduces risk for the lender.
A personal loan doesn’t require security, so they are seen as riskier.
But they can be used for a much wider range of purposes.
Many of the other differences relate to the reduced risk of secured car loans.
Here’s an overview of the key factors when comparing a personal loan versus a car loan…
Personal Loans | Car Loans | |
---|---|---|
Loan purpose | Can be used for most expenses | Only for new or newish vehicles |
Security required? | No | Yes |
Loan amount | Up to $100,000 | Up to $150,000 |
Term | 1-7 years | 1-7 years |
Repayments | Weekly, fortnightly or monthly | Weekly, fortnightly or monthly |
Interest rates | Starting from 6-7% | Starting from 5-6% |
Interest rate type | Fixed or variable | Usually fixed |
Early repayment | Yes | Yes but fees may apply |
Whether a car loan or a personal loan is better will depend on your circumstances and what you want to achieve with the loan.
Here's a summary of when the options may be suitable to help you make up your mind and choose with confidence.
Whether you decide to go with a personal loan or a car loan, you should generally to looking at similar factors when comparing loans from different providers.
The main ones are summarised below.