Car loan or personal loan: which one suits you?

5 November 2026 · By Andrew Faulkner

Buying a car is one of the most common reasons people borrow, and there are usually two ways to fund it: a car loan or a personal loan. They can look similar on paper, but they work differently.

What is a car loan?

A car loan is usually a secured loan. The vehicle itself is the security, which means the lender can take it back if repayments aren’t met. Because the lender has that security, secured loans often come with lower interest rates than unsecured ones, though the rate you’re offered depends on your circumstances and the lender.

What is a personal loan?

A personal loan is often unsecured, with no asset held as security. You can spend the money on almost anything, which makes it flexible. The trade-off is that rates are often higher, and borrowing limits can be lower.

Things to compare

• Interest rate and comparison rate. Always compare the comparison rate, as it includes most fees.
• Fees. Look at establishment fees, monthly account fees and early repayment costs.
• Flexibility. Check whether you can make extra repayments or pay the loan off early without penalty.
• Vehicle type and age. Some lenders have rules about the age of the vehicle or whether it’s a private sale.
• Term. A longer term lowers each repayment but usually means more interest overall.

Which is right for you?

There’s no single right answer. It depends on what you’re buying, how much you need and what you’re comfortable with. The same thinking applies to caravans, boats and jet skis.

That’s where a broker can help. We compare lenders and explain the options so you can choose with confidence.

This article is general information only and isn’t personal financial advice. Credit is subject to lender approval, fees and charges.

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