Should you get a car loan or a personal loan?

Looking to buy a car? Great. But which loan is going to serve you best when buying a new car? Today we compare personal loans and car loans – both can be useful facilities to help you get into a new car but there are a few things to take into account with each.

Personal Loans

Personal loans allow a client to use the loan to finance a holiday, renovations, studies, cars, bikes, boats, weddings and more.

Personal loans allow you to borrow a particular amount of money, which you will make repayments for until you have repaid the loan amount plus the interest. A longer loan term can reduce your repayments, however it will increase the total amount of interest you pay over the loan term.

Most personal loans a usually unsecured and due to the additional risk, they usually come with a much higher interest rate than a secured loan or car loan.

Before deciding to purchase a car using a personal loan, you should look at a secured car loan which can provide a better overall outcome.

Using a personal loan for a car purchase can be useful if the car is older or if the client intends or selling the car before the end of the loan term.

Car Loans

A car loan in its simplest form is not all that different different from a personal loan. The main difference is that a car loan provides funds to finance a car only and the finance is secured against the asset, which in this instance is a motor vehicle. 

Car loans are secured against an asset and provide additional security to the lender. With that additional security comes lower interest rates and cheaper fees.  

Car loan terms vary from one to seven years. If your aim is to reduce total interest paid, go for a shorter term. However, if you want to keep your repayments to a minimum, go for a longer term.

If you’re after a loan to finance a car purchase, it is almost always best to go with a secured car loan. Whilst they may provide less flexibility, the lower rates, fees and better terms will always result in a great outcome.