Would a car loan or a personal loan be better for your budget? Take a look at the pros and cons, then compare your options with CANSTAR.
Although car loans are actually a type of personal loan, there are some minor differences between the two products. When it comes to buying a car, whether you choose to apply for a car loan or a personal loan will depend on a number of factors in terms of what you’re looking for.
You will generally find fixed rates instead of variable rates when it comes to car loans. The benefits of a fixed rate include that you have the ability to budget with an assurance that the rate will not change for the length of your loan, say 1-5 years.
The downside to a fixed rate is that it doesn’t offer any flexibility in regards to repayments. So if you bought a Scratchie ticket and won the Gold Lotto, you might want to pay off the rest of your loan, but you may have to pay an early termination fee.
Overall, a car loan is basically a secured, fixed rate, personal loan however you can find variable rates and unsecured car loans as well. The car itself is used as security for the loan, so you want to make sure that you don’t miss any repayments.
A personal loan allows you to borrow for a wider variety of purposes, while car loans are usually restricted to only motor vehicles. You can use a personal loan for things like financing a holiday, a car, home renovations, or consolidating your debts..
Because of this extra range of purposes, personal loans have a lot more range of options:
The benefit of being able to choose a secured loan is that they usually offer lower rates, because they are secured against an asset and are therefore a lower credit risk for the lender.