Personal loan vs Car Loan

  • Personal and car loan differences explained

  • Pros and cons of both options

  • Your guide on how to decide

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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.

Personal loan vs car loan differences

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

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 loan vs car loan compared

Personal LoansCar Loans

Loan purpose

Can be used for most expenses

Only for new or newish vehicles

Security required?



Loan amount

Up to $100,000

Up to $150,000


1-7 years

1-7 years


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 but fees may apply

Pros and cons of personal loans


  • More flexibility on how to spend the loan funds (e.g an older or more unusual car)
  • Security is not required
  • Fixed or variables rates usually available
  • Early repayments generally allowed


  • Usually a higher interest rate
  • This can make them considerably more expensive overall
  • Rates can be particularly high for bad credit borrowers and people with an irregular income

Pros and cons of car loans



  • You’re more restricted on what you can spend the money on
  • Usually only fixed rates available
  • There may be more restrictions and fees for repaying the loan early
Is a personal loan better than a car loan

Is a personal loan better than a car loan?

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.

When could a personal loan be better?

When could a car loan be better?

  • If you want car finance for a new or fairly new vehicle and don’t need the loan to cover other costs (i.e. a maximum car loan LVR of 100%), a car loan will generally be a cheaper option. Particularly if you can find a car loan that offers flexibility on making extra repayments without penalty.
  • A car loan, where the vehicle is used as security, may also reduce the risk in lenders’ eyes if you have bad credit, or you’re self-employed and need a low doc loan.
  • Remember, there are also secured options for other vehicle types, like motorcycle loans, caravan loans and even boat loans.
Features to look for in car loans AND personal loans

Features to look for in car loans AND personal loans

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.

  • Lowest interest rate that you're eligible for (this will be based on your credit score and other factors)
  • Lowest fees you can find
  • Flexible repayments - if you want a loan that fits your income schedule
  • Extra repayments without fees - if you want to save on interest charges
  • Early loan settlement without fees - if you want to completely repay the loan early
  • Redraw facility - if you need to withdraw any extra repayments you have made
  • Eligibility - make sure you will actually be able to get your loan application approved

Written by

Shaun McGowan founder

Loans Expert

Shaun McGowan

Reviewed by

Sean Callery Editor


Sean Callery