Car Finance vs Personal Loan: Your Complete Australian Guide
Complete guide to car finance vs personal loan in Australia. Compare options, rates, and eligibility. Expert advice from Esteb and Co.
In This Article
Looking for car finance vs personal loan in Australia? Understanding your options helps you secure competitive rates and terms that match your needs.
Understanding car finance vs personal loan
car finance vs personal loan options in Australia include secured loans (using the vehicle as security), unsecured personal loans, dealer finance, and novated leases for salary packaging.
Current rates range from 6.49% for excellent credit to 15%+ for applicants with credit issues.
Types of Car Finance
| Finance Type | Rate Range | Best For | Key Feature |
|---|---|---|---|
| Secured Car Loan | 6.49% - 12% | New/used vehicles | Lower rates, car as security |
| Unsecured Personal Loan | 7.99% - 18% | Flexibility | No asset security needed |
| Dealer Finance | 7% - 14% | Convenience | One-stop shop |
| Novated Lease | Varies | Tax benefits | Pre-tax salary deductions |
Eligibility Criteria
- Age - 18+ years old
- Income - Regular employment or business income
- Credit history - Clean history preferred, options for impaired credit
- Residency - Australian citizen or permanent resident
- Vehicle age - Most lenders have maximum age limits (typically under 10-12 years at loan end)
How to Get the Best Rate
To secure the best car finance vs personal loan rate:
- Check your credit score before applying
- Compare multiple lenders (not just the dealer)
- Consider a shorter loan term for lower total interest
- Provide a larger deposit if possible
- Use a broker to access wholesale rates
Personal Loan Options in Australia
Personal loans provide a lump sum that you repay over a fixed term with regular payments. They're useful for consolidating debt, funding major purchases, or covering unexpected expenses. Australian lenders offer both secured and unsecured options with terms typically ranging from 1-7 years.
Interest rates vary significantly based on your credit profile, loan amount, and whether you provide security. Shopping around can save thousands over the life of the loan.
Secured vs Unsecured Personal Loans
| Feature | Secured Loan | Unsecured Loan |
|---|---|---|
| Collateral required | Yes (car, savings, property) | No |
| Interest rates | 6.99% - 12% | 8% - 22% |
| Loan amounts | $5,000 - $100,000+ | $2,000 - $50,000 |
| Approval speed | 1-5 days | Same day - 3 days |
| Credit requirements | More flexible | Stricter |
| Risk if you default | Lose the asset | Credit damage, collection |
Common Uses for Personal Loans
- Debt consolidation - Combine multiple debts into one lower-rate payment
- Car purchase - Often better rates than dealer finance
- Home improvements - Renovations, repairs, landscaping
- Medical expenses - Dental, elective surgery, IVF
- Wedding costs - Venue, catering, honeymoon
- Travel - Holiday funding (though saving is usually better)
- Emergency expenses - Unexpected bills, repairs
- Education - Courses not covered by HECS/HELP
Avoid using personal loans for everyday expenses or depreciating assets where possible.
How to Compare Personal Loans
- Look at comparison rates - These include fees and give a truer cost picture
- Check total repayment amount - A lower rate over a longer term may cost more overall
- Review fees - Establishment, monthly, early repayment, and late payment fees
- Consider flexibility - Can you make extra repayments without penalty?
- Check early exit terms - Some loans charge fees for paying off early
- Read reviews - Customer experience matters, especially if issues arise
When Personal Loans Make Sense
Personal loans are appropriate for specific situations:
| Good Uses | Why It Works | Consider Instead |
|---|---|---|
| Debt consolidation | Lower rate than credit cards | Balance transfer card (0% periods) |
| Major purchase | Fixed payments, clear end date | Saving if not urgent |
| Medical expenses | Manage large unexpected costs | Payment plans from provider |
| Home improvements | Fixed budget, clear purpose | Home equity if substantial |
| Emergency repairs | Immediate need, can't wait | Emergency fund for future |
Avoid using personal loans for: everyday expenses, holidays you can't afford, depreciating items like electronics, or gambling/speculation.
Debt Consolidation Strategy
If you're using a personal loan to consolidate debts:
- List all debts - Include balances, interest rates, and minimum payments
- Calculate total - This is your consolidation loan amount
- Compare rates - Personal loan rate must be lower than weighted average of existing debts
- Factor in fees - Establishment fees, early exit fees on existing debts
- Close old accounts - Avoid re-using credit cards after paying them off
- Set up direct debit - Automatic payments prevent missed repayments
Consolidation only works if you address the underlying spending habits. Otherwise, you risk ending up with both the personal loan and new credit card debt.
Personal Loan Alternatives
Consider these options before committing to a personal loan:
- Credit card balance transfer - 0% periods available, good for short-term consolidation
- Buy now pay later - Interest-free for smaller purchases (watch for fees)
- Payment plans - Many providers offer interest-free installments
- Salary advance - Some employers offer advances on earned wages
- Savings - Delay purchase and save if not urgent
- Family loan - Interest-free but formalise with written agreement
Frequently Asked Questions
Q: Can I get a car loan with bad credit?
A: Yes, specialist lenders offer car loans for bad credit. Rates are higher (12-24%) but approval is possible with stable income.
Q: What's the maximum loan term?
A: Car loans typically range from 1-7 years. Shorter terms mean higher repayments but less total interest.
Q: Do I need a deposit?
A: Not always required, but a 10-20% deposit can secure better rates and reduce your repayments.
Q: Can I pay off my car loan early?
A: Most car loans allow early repayment. Some have exit fees, especially fixed-rate loans, so check terms carefully.
Q: How much can I borrow with a personal loan?
A: Personal loans typically range from $2,000 to $50,000 unsecured, or up to $100,000+ secured. Your limit depends on income, expenses, and credit history.
Q: Will a personal loan affect my credit score?
A: Applying creates a hard enquiry (small temporary impact). Managing the loan well improves your score over time. Missing payments damages it significantly.
Q: Can I pay off a personal loan early?
A: Most personal loans allow early repayment. Fixed-rate loans may charge break fees. Variable rate loans usually have no penalty. Check your contract terms.
Q: How quickly can I get approved?
A: Online lenders can approve within hours and fund same or next day. Banks typically take 1-5 business days. Complex applications may take longer.
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