Personal vs Secured Car Loans
Which is best, a personal loan or a secured car loan?
Getting a loan is easier than it's ever been. You can apply for a personal loan online, and be approved within a few hours. A secured car loan can quickly and easily be arranged online or at a dealership too.
Just because the process is really easy doesn't mean you should apply for the first loan you find, you want to make sure that you're also getting great value for your money.
Would a personal loan or a car loan be best for you right now? Take a look at some of the pros and cons before you apply for your next loan.
|Personal loans vs Secured Car Loans|
|Personal Loans||Secured Car Loans|
|Use money for any personal project||Funds must be used only for car purchase|
|Smaller lend of $1,000-$5,000 available||Minimum purchase usually over $3,000|
|Purchase older vehicles||Car must be less than 7 years old|
|Interest rates can be higher||Lower interest rates due to security over car|
|Flexible payment structure||Regular payments for the loan term usually 3-5 years|
|Bad credit loans tougher||Bad credit loans more likely to be approved|
With a personal loan, you can borrow from $1,000 to $50,000 to be used for any personal reason, whether you're borrowing to invest, do renovations, buy large household items, or take a holiday. You can choose your loan term, usually 1 to 3 years.
If you take out a shorter loan term, your repayments will be higher, but you'll pay less interest. A longer loan term ends up being more expensive as you take longer to pay back the loan principal.
Having no restrictions on how you choose to spend the money is a huge plus, but if your loan isn't secured by collateral, you'll pay a higher interest rate than for a secured loan.
Some ways that you can use a personal loan are:
- Purchase older motor vehicles
- Consolidate debts
- Home renovations
- Any other personal project
If you are considering applying for a personal loan, be sure to ask about the possibility of securing the loan so that you can access a lower interest rate.
Personal loans can have variable or fixed interest rates, and this means you have more flexibility with your regular repayments. Make sure you check your loan contract before paying out the loan early, as there may still be an early payout fee.
Secured Car Loans
Most car loans will be secured against the car that you purchase using the loan funds. You'll usually have a loan term of between three and five years, with fixed repayments due each month. You have to use all of the money that you borrow to purchase the car. You can also purchase a motorbike, farm equipment, or other vehicles with a secured car loan.
Secured car loans have a fixed interest rate, so you know ahead of time what your repayments will be for the entire loan term. When you apply for the car loan, you'll need to provide the invoice for the car that you're purchasing to the lender, as well as evidence of comprehensive car insurance.
For the duration of the secured car loan, the lender will register their interest on the PPSR. If you need to sell the car before the end of the loan term, you'll need to make arrangements to pay out or refinance your car loan.
Fixed rate loans don't usually offer extra repayment options, but if this is important to you then ask your finance broker to research lenders that offer early payments.
To simplify your car ownership costs, you can usually include your comprehensive insurance payments in your regular car payment.
Choosing the right loan for me
Now you know the difference between personal and secured car loans, it's easier to make the right decision. If you're looking to purchase a car, then a secured car loan will almost always provide you with the best value for money.
If you need the money for other reasons, then a personal loan is the way to go. This gives you the flexibility to choose how you allocate the money.
To get the best possible interest rate on your personal loan, make sure have a finance broker compare the bank and other lender options for you, so you aren't paying too much for your loan.
Whether you need a personal loan or a secured car loan, comparing the available options, or having someone in the know do it for you, will make all the difference to the total cost of your loan over time.