Anyone currently looking to buy a car has probably noticed there’s no shortage of car finance options available. Between loans offered by dealerships, banks and independent lenders, buyers are spoiled for choice. That’s great news for most of us, it means we have the freedom to shop around and choose the best deal available. Across the life of a car loan, you could be looking at thousands of dollars difference between two products, so it pays to get it right. One of the biggest choices you’ll be faced with is to decide whether you pay for your new car with a car loan or a personal loan. The two options are similar, but most people will benefit from simple car finance, and in this article, we’re going to look at why.
What’s the Difference Between Car Finance and Personal Loans?
Strictly speaking, car finance is a type of personal loan, except the money you borrow, can only be used to purchase a car.
A car loan will be subject to similar terms as a personal loan, such as the payment of interest, fixed loan periods and options for secured or unsecured borrowing. But, despite their similarities, there are a few key differences that separate personal and car loans:
Personal loans, like the ones from your bank, can be used to borrow money for whatever you like. If you take out a personal loan to buy a car, your bank will often allow you to secure the loan against the car, however, there’s no requirement to do so.
You usually don’t need to tell the bank what you’re spending the money on, or to spend all the money on one thing. With a personal loan, you could borrow enough to buy a car and then have money left over to spend on another item.
Personal loans are subject to different lending criteria and limits, and they typically charge higher interest, use variable interest rates and have lower borrowing limits.
Car loans, like the ones you find at many dealerships, can only be used to borrow money to buy a car, and you can only borrow the amount needed to pay for it. In most cases you will need to use the car you’re buying as collateral to secure the loan, however, some lenders offer options for unsecured loans. Depending on the lender you use, it can be difficult to obtain approval to buy older or classic cars, with lenders considering them to be higher risk.
Car finance usually offers higher borrowing limits, lower interest and fixed interest rates.
Which is Better for Buying a Car?
The answer to this question will depend on what kind of car you want to buy and your own personal circumstances. For most people, car finance offers a significantly better deal. Lower, fixed interest rates mean the total amount of money spent on your new car is reduced, possibly by thousands of dollars. Car finance options are also highly competitive, meaning better deals for customers.
If you were thinking about taking out a personal loan to buy a car and then spending the rest on a holiday to the Gold Coast, it might be more cost-effective to use car finance for one, and a second, smaller personal loan for the other.
Does My Credit Score Play a Role?
No matter what type of loan you’re taking out, your credit score will almost always play a role. Better credit scores give you access to favourable loans with higher borrowing limits, lower interest rates and longer loan periods. The effect credit scores have on interest rates means an unsecured personal loan can jump significantly in its total cost.
With so many options available and the ability to secure the loan against the car, car finance is often the more favourable deal.
Need a Car Loan? Contact Downtown Toyota today!
Downtown Toyota is proud to offer Toyota Access car financing to our customers. Toyota Access loans feature fixed interest rates, set repayments and our Guaranteed Future Value program means it’s easy to stay on top of your budget and still drive away with a car you’ll love. Contact the Downtown Toyota team today if you’d like more information or to book a test drive!