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Car loans vs personal loans

Need financing for a car? Find out whether a personal loan or a car loan is preferable for you.

Taking out finance in order to purchase a car is a common form of borrowing. The two most applied for types of financing to purchase cars are car loans and personal loans. While similar in some respects, car loans and personal loans are distinctly different forms of finance. So, it is important to work out which one can get you more value for money.

This guide will explain the differences between these two loan types. It also includes a calculator to help you work out exactly how much money you can save by opting for one over the other.

What’s the difference between a car loan and a personal loan?

The exact terms of your financing will depend on your chosen lender and product, but you can generally expect to find the following features with each type of loan.

Car loans

These are dedicated loans designed to cover only the cost of a car and related expenses such as licensing and registration. Most, but not all, are secured loans.

  • Interest rates. Rates will be more competitive if your loan is secured. If you choose dealership finance you’ll generally have to pay a balloon payment.
  • Secured. Car loans use the vehicle you’re borrowing money for as collateral. This means you can access lower rates, but if you default on the loan the lender may be able to claim the car.
  • Application. You need to supply more information, specifically about the vehicle, when you apply. This can include the make, model and VIN/Chassis number.
  • Restrictions. There are various restrictions with car loans. For example, you may not be able to buy a used car with the loan depending on its age.

Personal loans

Personal loans are considerably more flexible. You can also shop around to find terms and conditions that may be preferable for you.

  • Use of funds. You can generally use the approved funds for any purpose you have, including purchasing a car. You can even use part of the loan amount to purchase the car and another part for a different purpose.
  • Unsecured. While car loans are typically secured, in that they use the car itself as collateral, unsecured personal loans do not require you to put up any collateral. This may reduce your risks, but generally comes at the cost of higher rates.
  • Application. You need to list the purpose of the loan, but this can be quite general. For example, you may list debt consolidation, travel or large purchase as a reason.

Essentially, you could think of car loans as “pre-made packages”, while personal loans are more flexible and can be tailored to your needs.

Which is better, a car loan or a personal loan?

Whether a car loan or a personal loan is better will depend on your personal situation. For example, a personal loan might be better for you if you:

  • Are buying an older car that may not qualify as loan security
  • Decide that you want a bit of extra cash to use for another purpose
  • Have excellent credit and can secure a competitive personal loan

A car loan might be preferable if you:

  • Don’t want to spend as much money over the life of the loan
  • Are looking to buy a new, or newer model of car
  • Haven’t got a perfect credit history

Questions to ask yourself before submitting a loan application

If you’re wondering what you should ask yourself before you click “submit” on that loan application, we’ve got a few handy tips that will help.

Are you expecting your financial situation to change?

If you’re anticipating a change in your financial situation in the near future, there’s a good chance a personal loan is preferable for you. An unsecured loan may carry less risk in an uncertain future.

Do you know what car you want to buy?

Pre-approval is generally only available with car loans. This means that if you want to shop for a car knowing how much you have to spend, you may want to opt for a car loan.

Are you buying a used car?

Buying used instead of new can be an effective way of saving money, but depending on the vehicle you might not be able to find a car loan, and will have to go for a personal loan instead. For example, some car loans will require the vehicle to be less than two years old while personal loans will not have any such restrictions.

Do you want to modify your car?

It can be costly to make modifications to your vehicle. Whether it’s just a new coat of paint or as extensive as changing the body of the car, many car lenders won’t let you add this cost onto your loan. With a personal loan, you can borrow however much you like for different purposes, so you can add this cost onto the loan amount yourself.

At the end of the day, the most effective way to compare loans is by looking at specific options side by side. It can be a good idea to use a calculator to work out value for money more precisely.

Compare car loans and personal loans

For more information on any of these loans, simply click “More Info” to be taken to our review page. To apply for a loan, click “Go to site”.

Name Product Interest Rate (p.a.) Min. Loan Amount Max. Loan Amount Loan Term Establishment Fee
FAST QUOTE
Simplify Secured Car Loan
6.25% - 12.50%
$5,000
$500,000
12 - 60 months
$100 - $500
Eligibility: Must be 18+, a New Zealand resident or permanent citizen and have an income of at least $500 per month.
See how much you could borrow without affecting your credit score.
MTF Finance Secured Car Loan
8.20% - 20.20%
$2,000
$100,000
3 to 60 months
$376
Eligibility: Must be 18+, be an NZ citizen, resident or have a work visa, and have a regular source of income.
Secured car loans from $2,000.
FROM 6.99%
The Co-operative Bank Unsecured Personal Loan
6.99% - 19.99%
$3,000
$50,000
6 months to 5 years
$200
Eligibility: Be 18+, an NZ citizen/permanent resident, or have a valid work visa.
Floating-rate, unsecured personal loans from $3,000.
Lending Crowd Secured Car Loan
5.03% - 15.44%
$5,050
$200,000
3 or 5 years
$450 - $1,450 depending on the amount borrowed
Eligibility: Be a NZ resident/citizen and have a good credit score.
Borrow $5,050 to $200,000 for your chosen vehicle. 100% online with no paperwork or early repayment fees.
CarFinance2U Car Loan
8.95% - 23.95%
$5,000
N/A
1 - 5 years
N/A
Eligibility: Be at least 21 years old, have a valid NZ driver's licence and be an NZ citizen or permanent resident.
With a CarFinance2U secured or unsecured car loan you could get pre-approval for your next car in 30 minutes.
Nectar Unsecured Car Loan
8.95% - 29.95%
$1,000
$25,000
6 months - 4 years
$240
Eligibility: Must be 18+, an NZ citizen or permanent resident, have an income of $400 per week or more (after tax) and a stable credit history.
Unsecured car loans from $1,000 with payouts made within one day of approval. Applications entirely online.
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Name Product Interest Rate (p.a.) Min. Loan Amount Max. Loan Amount Loan Term Monthly Service Fee Establishment Fee
100% ONLINE
The Lending People Personal Loan
6.95% - 26.95%
$2,000
$75,000
1 to 7 years
$0 - $10 depending on lender
$50 to $695 depending on lender
Eligibility: Be 18+, an NZ citizen or permanent resident, in employment and earning at least $500 per week.
Secured and unsecured loans of up to $75,000 from a variety of reputable lenders.
Harmoney Unsecured Personal Loan
6.99% - 19.99%
$2,000
$70,000
3 or 5 years
$0
$150
Eligibility: Be a NZ resident/citizen and have a good credit score.
Apply for an unsecured personal loan up to $70,000 with no early repayment fees.
FROM 6.99%
The Co-operative Bank Unsecured Personal Loan
6.99% - 19.99%
$3,000
$50,000
6 months to 5 years
$0
$200
Eligibility: Be 18+, an NZ citizen/permanent resident, or have a valid work visa.
Floating-rate, unsecured personal loans from $3,000.
Lending Crowd Personal Loan
5.03% -19.30%
$2,000
$200,000
2, 3 or 5 years
$0
$200 - $1,450 depending on the amount borrowed
Eligibility: Be a NZ resident/citizen and have a good credit score.
Secured and unsecured personal loans from $2,000 to $200,000. 100% online with no paperwork or early repayment fees.
Nectar Unsecured Personal Loan
8.95% - 29.95%
$1,000
$25,000
6 months to 4 years
$0
$240
Eligibility: Must be 18+, an NZ citizen or permanent resident, have an income of $400 per week or more (after tax) and a stable credit history.
Unsecured loans from $1,000 with payouts made within one day of approval. Applications entirely online.
Save My Bacon Unsecured Flex Loan
49.95%
$1,000
$5,000
8 - 52 weeks
$4
$50
Eligibility: Be 18 or over, have an income of at least $400 per week and be a NZ citizen, permanent resident or have a valid work visa.
Medium-term unsecured loans from $1,000 to $5,000 with no hidden fees.
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Step-by-step guide to finding the right type of loan

You might try the following steps to find a loan that works for you. Note that everyone’s circumstances are different and these steps may be considered guidelines.

If you are already certain whether a car loan or personal loan is right for you, then you can only compare those types of financing. If you’re unsure, it can be a good idea to compare both car and personal loans using the steps below.

  1. Go through the car loan and personal loan options in the table above
  2. Enter the interest rate, fees and terms into the calculator 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.

Frequently asked questions about personal loans vs car loans

Here are some questions we have been asked about car loans and personal loans:

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