What is a Personal Loan?
A personal loan is a loan you take out with a lender over a specified period, then repay via monthly repayments. You can use a personal loan for just about any private purpose deemed acceptable by the lender, including:- Going on a holiday.
- Covering the cost of a wedding.
- Debt consolidation (combining all your debts into one unsecured loan).
- Buying a car.
- Vehicle repairs.
- Small home improvements.
Car Loans
As the name suggests, a car loan is specifically for buying (or repairing) a new or used car, unlike a personal loan that can fund a broader range of purposes (including buying a car).
just because your credit has taken a hit in the past doesn't mean it should impact your future!
If you have a bad credit score, it’s possible to get a car loan for bad credit .
Apply Online NowPersonal loan vs car loan interest rates
Unsecured personal loans tend to have higher interest rates than secured car loans. That’s because unsecured loans are generally riskier for the lender. If the borrower doesn’t make their repayments per the loan agreement, it can sometimes be more challenging for the lender to get their funds back. With a secured car loan, the lender may be able to repossess and sell your car if you don’t make your repayments according to your credit contract.
You will generally see two rates advertised on both car and personal loans. One rate (usually the lower of the two) is the interest rate. The other rate (which may be higher) is called the ’comparison rate‘. It shows the interest rate plus the cost of any fees expressed as a percentage.
It can be a good idea always to use the comparison rate when comparing different loan options. Generally, you should choose the option with the lowest comparison rate, provided you meet the eligibility criteria and it has all the features you need. For example, you may not have the luxury of choice if you have a bad credit rating. In that case, look for finance that suits your needs, satisfies your cost requirements and where you suitability meet all of the eligibility criteria.
Differences between a car loan and personal loan terms. The ‘term’ of a loan is the timeframe you have to pay it back. Standard personal loan terms in Australia are generally between one and ten years. Common car finance terms are between one and up to seven years.
If you want to lower your regular repayments, you can take out a longer loan term
Personal loan vs car loan repayments
You must make regular repayments on personal and car loans under the loan agreement. The repayments are usually monthly direct debits, but you can arrange for weekly or fortnightly repayments if you prefer. It can be a good idea to align your repayments with when you get paid to help make budgeting easier.Your repayment amount will generally depend on:
- How much you borrow.
- The interest rates (which can be fixed or variable).
- Any ongoing fees.
- The frequency of your repayments.
- Your loan term.
- Whether you include a balloon payment if you’re taking out vehicle finance.
Fixed and variable interest rates
Variable interest rates can move up or down during the life of the finance. Fixed interest rates, on the other hand, stay the same.Car finance vs personal loans: the pros and cons
Below is a summary of some of the main pros and cons of car finance vs personal loans.Pros
- They are usually secured loans. A secured loan will generally have a lower interest rate than an unsecured personal loan.
- Getting secured vehicle finance is possible even if you have a bad credit score.
Cons
- They can only be used for purchasing a vehicle. If you’re looking to use the funds to buy a car, this isn’t really a con at all!
- Your lender may be able to repossess and sell your vehicle if you don’t make your secured car loan repayments in accordance with your loan agreement. This could be seen as an advantage because your other assets may not be on the line.
Personal Loan pros & cons
Pros
- They can be used for a broader range of purposes than purchasing a vehicle.
- Your lender will likely not be able to repossess and sell any of your assets if you take out an unsecured personal loan and you don’t make your repayments. However, it is important to note that they can take legal action against you, so you can’t simply walk away from your obligations.
Cons
- Unsecured loans typically have higher interest rates than secured loans.
- Getting a loan without security can be complicated if you have a bad credit score.
- Using a personal loan to buy a car, especially an older car, can be excessively expensive.
FAQs on Personal Loans and Car Loans
Can I access a personal loan or car loan with bad credit?
Yes, bad credit car loans and personal loans are available through specialist bad credit lenders, such as Finance One.
What is the interest rate on car loans vs personal loans?
Most car loans are typically secured loans. This means that the interest rates on these loans are usually lower than unsecured car loans or personal loans. Your final interest rate will depend on several factors, including your financial circumstances.
What credit score do I need to get a bad credit car loan?
Even for applicants with credit scores less than 500, with defaults, or discharged bankruptcy on their credit file, we can still look at offering personal finance. By taking into account your entire situation, and not just your past, we can work together to find a suitable finance solution.
What is a balloon payment?
A balloon payment is a lump sum you pay at the end of your loan term. The residual amount is usually agreed upon by you but is important to factor in, in case you plan to pay off your loan early.
Who offers the best new car loans?
Many people think that they need to head to a car dealership to get the best car loan, however, while it may seem convenient to apply at the dealership when buying a new car, car dealerships often don’t cater to those with a bad credit history and tend to inbuild a lot of ongoing fees to their loan contracts.
Top tip: Keep this in mind when you compare car loans — not every lender will offer their loans to those with poor credit scores.
Let Finance One get you the finance you need
Normal lending criteria apply. Fees and charges are payable. Terms and conditions apply.
Finance One means:
Fin One Pty Ltd – ABN: 80 139 719 903
Australian Credit Licence: 387528
Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent advice regarding your legal, financial, taxation or other needs, to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information. All loan applications are subject to normal lending criteria. Fees and charges payable. Terms and conditions apply.
