Personal Loans vs Car Loans: Which Is Better for Your Vehicle Purchase?

Understanding the Fundamental Difference

The core distinction between car loans and personal loans lies in how they are secured. A car loan is typically secured against the vehicle you are purchasing. The lender registers their interest on the Personal Property Securities Register (PPSR), giving them a legal claim to the car until you repay the loan in full.

A personal loan used for car purchase is usually unsecured. The lender approves the loan based on your creditworthiness and income, without taking security over any specific asset. You own the vehicle outright from day one, with no lender encumbrance.

This security arrangement drives most of the other differences between the two loan types, from interest rates to vehicle restrictions to what happens if you want to sell before the loan ends.

Interest Rates: Where Car Loans Often Win

Because secured car loans present less risk to lenders, they typically offer lower interest rates than unsecured personal loans. If you default on a car loan, the lender can repossess and sell the vehicle to recover their funds. With an unsecured loan, the lender has no specific asset to claim.

As of early 2026, competitive secured car loan rates from major Australian lenders start from around 5.5 percent for borrowers with strong credit profiles. Unsecured personal loan rates for similar borrowers typically begin at 7 to 8 percent and can range significantly higher.

The rate difference translates to meaningful dollar savings over the life of a loan. On a $30,000 loan over five years, the difference between 6 percent and 9 percent interest amounts to approximately $2,500 in additional interest paid. Use our car finance calculator to compare different interest rate scenarios and see exactly how much you could save or spend.

Vehicle Flexibility: Where Personal Loans Shine

Personal loans offer significantly more flexibility in what you can purchase. Because no asset secures the loan, lenders do not restrict your vehicle choice based on age, condition, or seller type.

Car loans often impose restrictions designed to ensure the asset retains enough value to cover the outstanding debt. Common restrictions include maximum vehicle age at loan end, often 10 to 12 years old. Some lenders will not finance vehicles older than seven years at purchase. Kilometre limits may apply, with some lenders declining vehicles with high odometer readings. Private sales may require additional documentation or not be permitted at all.

If you are buying an older vehicle, a classic car, or purchasing privately from someone who cannot accommodate dealer finance processes, a personal loan may be your only practical option. The flexibility to buy any vehicle from any seller can be worth the interest rate premium in certain situations.

Ownership and Selling Considerations

With a personal loan, you own the vehicle outright from the moment of purchase. There is no lender interest registered against it, and you can sell it at any time without needing lender permission or involvement. The loan continues independently, and you remain responsible for repayments regardless of whether you still own the car.

With a secured car loan, the lender maintains an interest in the vehicle until full repayment. To sell before the loan ends, you must coordinate with the lender to pay out the loan and have their PPSR registration removed. This adds complexity to private sales and may affect your negotiating position with dealers.

This ownership difference matters if your circumstances might change. If job relocation, family changes, or financial pressures could require selling the vehicle before your loan term ends, the simplicity of personal loan ownership may have value.

Approval and Documentation

Both loan types require proof of identity, income, and expenses as part of responsible lending assessments. However, car loans often require additional documentation related to the vehicle itself.

For a car loan, you typically need to provide the vehicle's details including make, model, year, and VIN. The lender may conduct their own valuation to ensure the vehicle is worth the loan amount. For used cars, a PPSR check confirms no existing encumbrances, and some lenders require inspection reports.

Personal loan approval focuses entirely on your financial situation. Once approved, you receive the funds and can purchase whatever vehicle you choose without further lender involvement or approval. This streamlined process can be faster and simpler, particularly for private sales.

Default Consequences: Understanding the Risks

What happens if you cannot meet your repayments differs significantly between loan types, and understanding these consequences helps inform your decision.

Car Loan Default: The lender can repossess your vehicle. They will sell it and apply the proceeds to your outstanding debt. If the sale does not cover what you owe, you remain liable for the shortfall, which becomes an unsecured debt. You lose your transport and may still owe money.

Personal Loan Default: The lender cannot automatically take your car. However, they can pursue court judgment against you, which may result in wage garnishment or other enforcement actions. Your credit score suffers significantly, and the debt may be sold to collection agencies. While you keep the car initially, severe consequences still follow default.

Neither scenario is desirable, and both significantly damage your credit. However, some borrowers prefer the certainty of keeping their vehicle with a personal loan, particularly if the car is essential for work or family obligations.

Fees and Charges Beyond Interest

When comparing loans, look beyond the headline interest rate to understand total costs. Both car loans and personal loans may include various fees that affect the true cost of borrowing.

Common fees include establishment or application fees ranging from $0 to $400, monthly or annual account keeping fees, early repayment fees or penalties, and late payment fees. Some lenders advertise low interest rates but recover margin through higher fees, while others bundle fees into slightly higher rates.

The comparison rate, which Australian lenders must display, helps by incorporating standard fees into a single rate figure. Compare the comparison rates rather than just advertised rates to get a clearer picture of total costs. However, note that comparison rates are calculated on a standard $30,000 loan over five years, so your actual costs may vary.

Which Option Suits Your Situation?

Car loans are typically better when: You are buying a newer vehicle that meets lender criteria. Minimising interest cost is your priority. You have good credit and qualify for competitive secured rates. You plan to keep the vehicle for the full loan term. You are comfortable with the lender's security interest in your vehicle.

Personal loans may be preferable when: You are buying an older vehicle that does not qualify for car finance. You are purchasing from a private seller without dealer finance options. You want full ownership and flexibility from day one. You may need to sell the vehicle before the loan ends. You prefer simplicity and fewer restrictions. You value keeping your car separate from your financing obligations.

Making Your Decision

Start by determining whether the vehicle you want qualifies for secured car finance. If it does, compare the best available car loan rate against personal loan options. Calculate the total interest cost over your intended loan term for both scenarios.

Consider the flexibility and ownership factors. Are restrictions on vehicle age and seller type relevant to your purchase? Might you need to sell before the loan ends? How important is simplicity versus achieving the lowest possible rate?

Use our car finance calculator to model both options with realistic rates. The dollar difference may clearly favour one choice, or it may be close enough that flexibility and convenience factors tip the balance.

Whatever you choose, ensure the repayments fit comfortably within your budget and that you understand all terms before signing. Both car loans and personal loans can be excellent vehicle financing tools when matched appropriately to your circumstances.