Which is better – car finance or a bank loan?
You want to buy a car. But alongside deciding on the make, model and colour of your next set of wheels, you’ve got to work out how you’ll pay for it. And unless you’ve got bucketloads of spare cash handy, that normally means borrowing money.
Two common ways of doing that are through a bank (also known as a personal loan) and car finance. But what’s the difference between a bank loan / personal loan and a car loan? And, more importantly, which is the best way to finance buying a car?
Personal loans vs car loans: what's the difference?
Many loan products are designed for a specific purchase. For example, a home loan is used to buy property, a boat loan is for boats, jet-skis and other marine craft, while car finance is strictly used for vehicles.
But bank loans / personal loans are a bit different. They can be used to pay for pretty much anything you like, including holidays, weddings, renovations and cars.
In either case:
- The loans can be unsecured or secured – though the most common type of car loan is a secured one while personal loans tend to be unsecured
- Having a good credit score increases your chances of approval and getting better terms
So, is it better to buy a car with a bank loan or a car loan?
To figure that out, you need to compare their typical features and repayment terms.
Personal loan vs car finance: which is better?
While the exact terms of the loan you end up with will vary depending on your financial situation and the lender you plump for, generally:
- Personal loans carry higher rates than car loans
As many personal loans are unsecured, they are considered riskier than a secured car loan backed by collateral (the vehicle). As a result, a car loan is typically considered lower risk by the lender – so you should get a lower rate
- Personal loans can be harder to get if you have a poor credit history
As car loans are generally secured against the vehicle you intend to buy, the lender has an asset to sell should you then default on the loan. As a result, lenders may be more willing to say yes to the deal if you have poor credit.
- Personal loans are more flexible than car finance
Once the funds come through, you can use the personal loan any way you see fit and whenever you want. This gives you a lot of flexibility. For example, you can buy a really old car or even use some of the funds for another purpose entirely. However, car finance can only be spent on a vehicle. Many lenders also have maximum age limits for the car being bought.
So, is it better to go with a bank loan / personal loan or car loan when buying a vehicle?
Which is better: a car loan or a personal loan?
As with all financing decisions, the answer boils down to your individual needs and financial goals. That said, you should always do the sums on all your available loan options, paying particular attention to their interest rates, terms and fees.
After all, picking the right option for you can save you a significant sum over the life of the loan. You should also think about how much you can afford to borrow on the car itself and how the costs of serving the loan will fit into your available budget.
As such, it can be a good idea to speak to an expert finance broker like National Loans when it comes to deciding the best way to finance a car. We can help you crunch the numbers and search the market for the best deal.
Need to borrow money to buy a car? Speak to the experts at National Loans. Click here for a free online quote. If you want help, please fill in this online form or contact National Loans on 1300 358 358.