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Compare car loans vs. personal loans

Deciding between a car loan vs. a personal loan could have a big impact on your future budget.

When you’re looking to buy a new car, part of your research inevitably involves determining what type of loan you should get. By comparing loan amounts and interest rates of car loans vs. personal loans, you can get a good idea of how much a loan will cost and which option is best for you. Both have their benefits, so weigh your options carefully before committing to either a car loan or personal loan lender.

Quick take: Car loans vs. personal loans for buying a car

Car loanPersonal loan
Good for people…
  • With lower credit scores
  • Looking for loan terms longer than 60 months
  • Who want to negotiate the overall cost
  • With excellent credit scores
  • Looking to buy older or modified cars
  • Who don’t want to use their car as collateral
Not good for people…
  • Who want to use loan money for other expenses like maintenance and car insurance
  • With low credit scores

What are the differences between car loans vs. personal loans?

Both personal loans and car loans can be used to finance a new or used car. Your choice should be based on your needs, your expectations for the future and the car you’re looking to buy.

But no matter which you choose, carefully read the terms and conditions attached to each loan to decide if it’s right for you. The exact terms of your car loan or personal loan can vary widely. However, most lenders don’t stray too far from the traditional model, so your loan will likely have many of the following features:

Personal loans for buying a car

Personal loans are considerably more flexible than car loans. Not only can you find them just about anywhere — online, at your local bank, at credit unions — but they can also have relatively low interest rates without you having to put up collateral. Of course, you’ll still have to compare quite a few options, which can take time you don’t have if you need to get a car right away.

  • Unsecured or secured. Personal loans may be secured or unsecured, but are typically unsecured (no collateral required). Lenders rely on your credit history and financial situation to determine if they should lend to you. But if your personal loan is unsecured, it may come with a higher interest rate than a car loans.
  • Shorter application. If no collateral is required, personal loans tend to have shorter applications. You’ll simply list the general purpose of the loan when you apply.
  • Use the funds for just about anything. Most personal loans don’t have restrictions on how you use your funds. You can use your loan to buy a car, cover any accessories and pay for taxes and registration. A car loan may not allow you as much leeway.

Car loans

Car loans are designed to cover the cost of a car and related expenses like licensing and registration. You can borrow a car loan from a dealership, a bank or an online lender, whichever is more convenient for you.

  • Lower interest rates. Since your loan is secured by your vehicle, your rates will be more competitive when buying a car than you would get with a personal loan.
  • Longer application. Car loan applications require more information for your lender, specifically about the make and model of the vehicle you’re buying. But don’t worry — many lenders give you time to shop and fill this info out later.
  • More restrictions. Unlike with a personal loan, a car loan can only be used for the purchase of a vehicle, although some lenders will allow the loan to cover taxes as well. And if you’re buying a used car, you may face limits on the vehicle you can buy with regards to its age, mileage and other factors.

How to decide between car loans vs. personal loans

There are times when buying a car with a personal loan will suit your situation better than buying a car using a typical car loan – and vice versa. We’ve outlined some factors to consider below when deciding whether a car loan vs. a personal loan is the best fit for you.

Consider a using a personal loan to buy a car if…

  • You’re expecting your financial situation to change. If you’re anticipating a change in your financial situation, there’s a good chance a personal loan is a better choice. Even if you lose your income and default, your car won’t be used as collateral — meaning it won’t be repossessed.
  • You’re buying an older used car. Buying used instead of new can be an effective way of saving money, but you might not be able to find a used car loan for the car you want — especially if it’s older 7 to 10 years — and might have to take out a personal loan instead.
  • You want to add extras to your car. It can be costly to make modifications to your vehicle, whether it’s just a new coat of paint or a change to the body of the car. Many car lenders won’t let you add this cost onto your loan. With a personal loan, you can add this cost onto the loan amount to have additional money for the extras.

Compare personal loans to buy a car

Name Product Interest Rate Loan Amount Loan Term Requirements Link
Spring Financial Personal Loan
17.99% - 46.96%
$500 - $15,000
9 - 48 months
Requirements: min. income $1,800/month, 3+ months employed, min. credit score 500
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More Info
If you're not eligible for an unsecured loan, you may be offered a credit builder loan to help improve your credit score.
LoanConnect Personal Loan
Secured from 1.90%, Unsecured from 5.75%-46.96%
$500 - $50,000
3 - 120 months
Requirements: currents debts total less than 60% of income, min. credit score 300
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More Info
Fill out one application with this broker and get pre-approved by different lenders in 5 minutes.
OFFER
Mogo Personal Loan
9.90% - 46.96%
$200 - $35,000
6 - 60 months
Requirements: min. income $13,000/year, min. credit score 500
100-day money-back guarantee. If you're not happy with your loan, pay back the principal and get your 100 days of paid interest and fees back.
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More Info
Get a free quote without affecting your credit score and get a loan on the same day. Track your credit score for free.
goPeer Personal Loan
8.00% - 33.92%
$1,000 - $25,000
36 - 60 months
Requirements: recommended income $40,000/year, no payday loan debt, min. credit score 600
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More Info
Connects creditworthy Canadians looking for a loan with Canadians looking to invest. Apply in minutes and get a response within 24 hours.
SkyCap Financial Personal Loan
12.99% - 39.99%
$500 - $10,000
9 - 36 months
Requirements: min. income $1,200/month, stable employment, min. credit score 550
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More Info
Apply in less than 5 minutes and if approved, receive financing in as little as 24 hours.
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Consider getting a car loan if…

  • You know exactly what car you want to buy. Knowing what car you want to buy puts you in a good position to negotiate with a lender. And since you’re already sure, you can apply for pre-approval on a car loan so you know exactly how much you can afford to sink into your next car.
  • You have bad credit. While having bad credit may make it harder to secure a loan, there are still bad credit car loans available. These tend to be a better deal than personal loans. This is because your car acts as collateral for the loan, giving you access to lower interest rates.

Compare car loans

Name Product Loan Amount Interest Rate Loan Term Min. Credit Score Requirements Table description
CarsFast Car Loans
$500 - $75,000
4.90% - 29.90%
12 - 96 months
300
Min. income of $2,000 /month, 3+ months employed
Get a new or used vehicle delivered to your door.
Browse thousands of vehicles from dealers across Canada and get matched with financing that meets your needs.
Loans Canada Car Loans
$500 - $35,000
0% - 29.99%
3 - 96 months
300
Min. income of $1,800 /month, 3+ months employed
Compare rates from multiple lenders.
Complete a single application to get quotes from different lenders. Bad credit, CERB and EI borrowers considered.
AutoLoanProviders
$7,500 - $85,000
3.99% - 29.99%
12 - 96 months
300
Min. income of $1,800 /month, 1+ months employed
Available in Ontario only.
Apply online and get your new vehicle delivered to your door anywhere in Ontario free of charge. All credit scores considered.
Coast Capital Car Loan
$10,000 - No Max.
Varies
18 - 84 months
650
Able to service debt payment of $300/month
Competitive rates and flexible terms.
Finance new and used vehicles from one of Canada's largest credit unions. No credit union membership required. Available across Canada except SK, QC, NT, NU, YT.
Splash Auto Finance
$10,000 - $50,000
9.90% - 29.90%
24 - 84 months
300
Min. income of $2,200 /month, 3+ months employed
Apply with any credit score.
Get financing for a new or used car. Auto loans for borrowers with fair credit, bad credit, no credit or bankruptcy.
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Compare the costs of a car loan vs. a personal loan

At the end of the day, the most effective way to compare loans is by looking at specific options side by side. If you’re unsure which financing option is best for your next car purchase, it can be a good idea to compare the APR and loan features of a car loan vs. a personal loan using the calculator below. Follow these steps to help you see which option is the most cost effective:

  1. Go through the car loan and personal loan options in the tables above.
  2. Enter the interest rate, fees and terms into the calculator below to see which one is more affordable.
  3. Adjust the terms to see if you can save on either option.
  4. Decide which loan is more affordable.

Step-by-step guide to finding the right type of auto financing

The following steps should help you find a loan that works for you. Use these steps as a guideline; your unique financial situation will impact the exact loan terms and amount that you qualify for.

  1. Compare different lenders and write down a list of loans you’ll likely qualify for. Remember to note the loan term and the APR as these will prove to be the primary points of difference between your loan choices.
  2. Estimate the interest rate and total cost of your loan by getting online quotes or by using an online loan calculator.
  3. Check out the features of the loan. Prepayment fees and interest rate discounts could play a role in helping you decide whether you want a personal loan or a car loan.
  4. Decide which loan is more affordable and best suits your needs. Try to limit your options to two or three lenders in order to make your choice easier.
  5. Fill out an application and wait to see if you’ve been approved. Most lenders have a pre-approval process that lets you check your rates before completing a full application and credit check (they will likely perform a soft credit check, not a full one).

Bottom line

Deciding between a car loan and a personal loan can impact your finances for years to come. It’s a big decision, and the right choice will depend on what you want from your lender. You should read up on your personal loan options and review how car loans work before settling on a loan.

Frequently asked questions about car loans vs. personal loans

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