Our guide to choosing a personal loan or car loan

Rapid Finance on 23 March 2016

Many Australians choose to finance their new cars with a secured car loan. But in some cases, it may be appropriate to purchase a car using funds from a personal loan instead. Weighing up your options and getting expert car loan advice could save you a lot of money.

Pros and Cons of Car Loans

This guide will give you an introduction to the different loan types and their advantages and disadvantages.

You'll find out what your options are, but it's always important to get expert advice before taking out a personal loan or car loan.

Car loans

The biggest difference between car loans and other loan types is that car loans must be used to buy a vehicle and are secured by that vehicle.

This means that car loans tend to be a lower risk for lenders because they have the right to repossess the vehicle if the loan is in default.

  • Easier to get finance if you have bad credit
  • More likely to get a higher loan amount
  • Secured by the vehicle you buy
  • Lower interest rates
  • Less flexible
  • Can only be used for vehicles
  • Have to pay the loan in full if you sell the vehicle

Pros and Cons of Personal Loans

Personal loans

A major advantage of personal loans is that they can be used for anything you want, including buying a car.

This also means that the loan is not secured by the asset you're purchasing, making the loan riskier for lenders.

You'll usually have to pay a higher interest rate for a personal loan than you would for a secured car loan.

  • More flexible
  • Can be used for multiple purposes
  • Car can be sold without paying off the loan in full
  • More difficult to get finance if you have bad credit
  • Not secured by an asset
  • Higher interest rates

Getting a car loan or personal loan: Which one is right for you?

Personal Loan or Car Loan

The answer to this question really depends on your circumstances and what the loan will be used for. If the loan is solely for a car, and you plan to keep that car for a long time, it's quite likely that a car loan will be the best option for you since it is the cheaper option.

There may be situations where a personal loan will suit your needs better. For example, you may want a loan that will cover the cost of a new car with enough left over to pay for home renovations.

You could also benefit from taking a personal loan instead of a car loan if you think you may sell the car before you finish paying off the loan. That way, you'll avoid having "negative equity" which is when the sale of the car does not cover the outstanding loan amount.

There may be situations where a personal loan will suit your needs better.

Need help choosing a loan?

Rapid Finance can help you choose a car loan or personal loan that is matched to your situation - including bad credit personal loans. From start to finish, our personal finance specialists will guide you through the process of getting finance for your new car.

For advice on a personal loan or car loan, call the Rapid Finance team on 1300 467 274.