What is the difference between a car loan and a personal loan?
A car loan is finance specifically intended for the purchase of a vehicle, while a personal loan is a broader type of borrowing that may be used for a range of purposes depending on the lender and loan product.
Some car loans are secured against the vehicle being purchased. This means the lender may take a security interest in the vehicle as part of the loan arrangement.
Personal loans can be either secured or unsecured depending on the product, although many people use the term personal loan to refer to unsecured borrowing.
The structure of the loan can affect the interest rate, eligibility requirements, amount available and what happens if repayments are not made.
The most important thing is not the label alone. Compare the actual interest rate, fees, loan term, repayments, security arrangements and total amount repayable.
Car loan vs personal loan at a glance
Purpose
A car loan is generally designed specifically for vehicle purchases, while a personal loan may allow broader uses.
Security
Some car loans are secured against the vehicle, while personal loans may be secured or unsecured depending on the product.
Interest rate
Rates can differ depending on the lender, security, borrower and loan structure.
Vehicle rules
A car loan may have requirements relating to the vehicle being financed.
Flexibility
A personal loan may offer more flexibility around how funds are used, depending on the lender.
Approval criteria
Both types of lending are subject to lender criteria and affordability assessment.
What is a car loan?
A car loan is a form of finance used to purchase a vehicle.
The loan amount is generally based on the amount you need to borrow after considering any deposit or trade-in.
The loan is then repaid through regular repayments over an agreed term.
Depending on the lender and product, the vehicle may be used as security for the loan.
The interest rate and terms available depend on the lender and your individual application.
What is a personal loan?
A personal loan is a broader lending product that can potentially be used for different purposes depending on the lender's rules.
Some borrowers use a personal loan to purchase a vehicle, particularly where they want greater flexibility around the transaction.
Personal loans may be secured or unsecured.
An unsecured personal loan generally does not use the purchased vehicle as specific security in the same way a secured car loan may.
The rate, fees, loan amount and term depend on the lender and the applicant's circumstances.
Car loan vs personal loan comparison
| Feature | Car loan | Personal loan |
|---|---|---|
| Main purpose | Vehicle purchase | Broader personal borrowing purposes depending on lender |
| Security | May be secured against the vehicle | May be secured or unsecured |
| Vehicle requirements | May apply | Can be more flexible depending on the product |
| Interest rate | Depends on borrower, vehicle and lender | Depends on borrower, security and lender |
| Private sale use | Potentially available depending on lender | Potentially available depending on loan purpose rules |
| Approval | Subject to lender criteria | Subject to lender criteria |
What is a secured car loan?
A secured car loan generally uses the vehicle as security for the finance.
The lender may register a security interest in the vehicle while the loan remains outstanding.
Providing security can reduce the lender's risk compared with completely unsecured lending, although this does not automatically mean every secured loan will have a lower rate.
If repayments are not made as required, the lender may have rights relating to the secured vehicle under the finance agreement and applicable law.
Read the credit contract carefully so you understand what security is being provided and what obligations apply.
What is an unsecured personal loan?
An unsecured personal loan generally does not rely on the vehicle being purchased as specific security.
Because the lender does not have the same vehicle security arrangement, pricing and eligibility may differ from secured vehicle finance.
An unsecured loan can sometimes offer more flexibility around the type or age of vehicle purchased, depending on the lender.
However, this flexibility does not necessarily mean the loan will be cheaper.
Compare the actual interest rate, fees and total borrowing cost rather than assuming unsecured borrowing is better or worse.
Are car loan interest rates lower than personal loan rates?
Not always. Whether a car loan has a lower interest rate than a personal loan depends on the specific lender, product and applicant.
Secured lending can sometimes be priced differently from unsecured lending because the risk to the lender may differ.
However, your credit profile, income, expenses, existing debts, requested loan amount and other factors can also influence the rate.
A personal loan from one lender could potentially have a lower rate than a car loan from another lender.
The best comparison is between the actual offers available to you rather than general assumptions about product categories.
Compare how different rates affect your repayments
Compare how different rates affect your repayments
Use AutoLoan's car loan calculator to test different loan amounts, interest rates and terms before deciding what finance structure fits your budget.
Use the Car Loan Calculator →Which is cheaper: a car loan or a personal loan?
There is no universal answer because the cheapest option depends on the actual finance available to you.
Compare the personalised interest rate, all applicable fees, loan term and total amount repayable.
A loan with a lower advertised rate can still cost more overall if it has higher fees or a much longer term.
Similarly, a smaller weekly repayment can be created simply by spreading the debt over more years.
Focus on the total cost and suitability of the finance rather than the product name.
What determines the real cost of a loan?
Interest rate
The rate affects how much interest is charged on the outstanding balance.
Fees
Establishment and other applicable charges can increase borrowing costs.
Loan amount
Borrowing more generally increases both repayments and total interest.
Loan term
Borrowing for longer can reduce regular repayments while increasing total interest.
Repayment structure
The frequency and structure of repayments can affect how the loan fits your budget.
How does security affect car finance?
Security gives the lender a legal interest in an asset under the terms of the finance agreement.
With some car loans, the purchased vehicle is used as the security.
This can affect lender pricing and eligibility because the loan is supported by an asset.
The vehicle may need to meet certain age, value or other requirements for secured finance.
Make sure you understand any security arrangement before agreeing to the loan.
Can the lender repossess the car with a secured loan?
A secured lender may have rights over the vehicle if the borrower does not meet the obligations in the finance agreement, subject to the contract and applicable law.
This is an important difference between secured vehicle lending and unsecured borrowing.
You should understand what happens if repayments are missed before accepting any secured finance.
If you are experiencing difficulty making repayments, contact the lender rather than ignoring the problem.
Do personal loans have more flexibility?
A personal loan can potentially provide more flexibility depending on the lender's permitted loan purposes.
For example, the loan may not have the same vehicle-age or security requirements as a dedicated secured car loan.
This can be useful when purchasing an older vehicle, buying privately or needing funds for several related costs.
However, greater flexibility can come with different interest rates or terms.
Read the lender's conditions to understand how the funds can be used.
Which loan is better for an older used car?
Older vehicles can sometimes fall outside the requirements of certain secured car loan products.
In that situation, an alternative lending structure may potentially be relevant depending on the lender.
However, financing an older vehicle also raises questions about how long the loan should run and what maintenance costs the car may have.
A personal loan is not automatically the better choice simply because the vehicle is older.
Compare the actual loan options and consider whether the vehicle itself is appropriate for long-term finance.
Which is better for buying a used car?
Both car loans and personal loans can potentially be used in connection with used vehicles depending on the lender and product.
A dedicated car loan may be suitable when the vehicle satisfies the lender's criteria and the secured finance terms are competitive.
A personal loan may offer flexibility in some used-car transactions.
The best choice depends on the actual rate, fees, term, vehicle requirements and total cost.
Carry out appropriate vehicle checks regardless of which finance type you choose.
Questions to ask when financing a used car
How old is the vehicle?
Vehicle age may affect which finance products are available.
Is the loan secured?
Understand whether the vehicle will be used as security.
What is the rate?
Compare the personalised interest rate rather than only advertised pricing.
What fees apply?
Include applicable fees when comparing total cost.
How long is the loan?
Make sure the loan term is sensible for the age of the vehicle.
Which is better for buying a car privately?
Private vehicle purchases can potentially be financed with different loan structures depending on the lender.
A dedicated vehicle finance provider may be able to arrange finance for an eligible private sale.
A personal loan can also potentially give the borrower funds to purchase privately, subject to the lender's rules and approval.
With private purchases, make sure appropriate ownership, security and vehicle-condition checks are completed before settlement.
The finance method should not replace proper due diligence on the vehicle.
Does a car loan require a deposit?
Not necessarily. Deposit requirements vary between lenders, vehicles and applicants.
A deposit can reduce the amount you need to borrow and therefore reduce repayments when other loan terms remain equal.
Some finance options may potentially be available without a deposit, subject to lender criteria.
The absence of a required deposit does not automatically make financing the full purchase price the best choice.
Does a personal loan require a deposit?
A general personal loan does not usually work around a vehicle deposit in exactly the same way as dealer or vehicle finance.
Instead, the lender approves a particular loan amount based on its criteria.
If you contribute your own money towards the car, you may simply need to borrow less.
Borrowing less can reduce the regular repayment and total interest cost.
Example of using a deposit
| Vehicle price | Your contribution | Amount requiring finance |
|---|---|---|
| $20,000 | $0 | $20,000 |
| $20,000 | $4,000 | $16,000 |
| $30,000 | $5,000 | $25,000 |
| $40,000 | $8,000 | $32,000 |
| $50,000 | $10,000 | $40,000 |
Can you use a trade-in with a car loan?
Positive equity from a trade-in may contribute towards the purchase price of your replacement vehicle.
This can reduce the amount of new finance required.
If your existing vehicle still has money owing, the settlement amount needs to be considered when calculating your equity.
The transaction can often be coordinated as part of a dealership purchase or finance process.
A smaller required loan can reduce repayments if the other finance terms remain unchanged.
Can you use a personal loan if you have a trade-in?
Potentially. The trade-in proceeds can reduce the amount of additional money you need to borrow.
How the trade-in transaction is handled depends on whether you are buying from a dealership or selling your current vehicle separately.
If there is existing finance on your old vehicle, make sure it is appropriately settled.
The personal loan itself would still be assessed independently according to the lender's criteria.
Which loan is easier to get approved for?
Neither car loans nor personal loans are universally easier to obtain.
Approval depends on the lender, the product and your individual circumstances.
A secured car loan may suit one borrower while an unsecured personal loan may better fit another.
Income, expenses, existing debts, credit profile and requested loan amount can affect both types of application.
Vehicle details may add another assessment factor for dedicated car finance.
Does credit history matter for both types of loan?
Yes. Your credit profile can be relevant whether you apply for a car loan or a personal loan.
Different lenders may use different credit policies and pricing models.
A stronger credit profile does not guarantee the lowest rate, and adverse credit does not necessarily mean every application will be declined.
The lender also considers affordability and other application information.
Can you get either loan with bad credit?
Potentially, depending on the lender and your overall financial position.
Adverse credit may reduce the finance options available or affect pricing.
The presence or absence of vehicle security can also influence which products a lender is prepared to offer.
Do not assume that an unsecured personal loan will be easier to obtain simply because the vehicle is not being used as security.
Any finance remains subject to lender assessment and approval.
How do repayments compare?
Repayments for both car loans and personal loans depend on the amount borrowed, interest rate, term and applicable costs.
A loan with a lower interest rate may have a smaller repayment if the amount and term are the same.
A longer term can reduce the regular payment while increasing the time over which interest is charged.
When comparing two loans, use the same loan amount and similar term so you are comparing like with like.
Compare your estimated vehicle repayments
Compare your estimated vehicle repayments
Use AutoLoan's calculator to see how different loan amounts, interest rates and terms could affect your weekly or monthly repayments.
Calculate My Repayments →Should you choose the loan with the lowest weekly repayment?
Not necessarily. The lowest weekly repayment can simply be the result of a longer loan term.
A loan that runs for more years may keep the regular payment small while increasing the total amount of interest paid.
Check the interest rate, fees and total amount repayable alongside the regular repayment.
The goal should be a repayment that is affordable without unnecessarily extending the debt.
How do loan terms compare?
Both car loans and personal loans can have different repayment terms depending on the lender and product.
A shorter term generally results in larger repayments but pays the debt off sooner.
A longer term generally produces smaller regular repayments but can increase total borrowing costs.
For vehicle finance, also consider how old the car will be when the loan finishes.
A very long loan term on an older car may leave you making repayments while the vehicle requires increasing maintenance.
Which option gives you more freedom to sell the car?
If a vehicle is being used as security for a car loan, selling it while the finance is still outstanding can require the loan and security interest to be dealt with as part of the transaction.
An unsecured personal loan may not have the same vehicle-specific security arrangement.
However, the debt does not disappear simply because you sell the car. You remain responsible for the loan according to its terms.
If you expect to change vehicles regularly, review the settlement and early-repayment conditions before choosing finance.
What happens if you want to pay the loan off early?
Early repayment conditions vary between lenders and loan products.
Check whether the loan allows additional repayments and whether any costs or adjustments apply if you settle the finance early.
This applies whether you are considering a car loan or a personal loan.
Do not assume one product will always be more flexible than another without reading the actual contract.
Loan features worth comparing
Extra repayments
Check whether additional repayments are permitted and whether conditions apply.
Early settlement
Understand what happens if you want to repay the loan before the original end date.
Security
Know whether the vehicle or another asset is being used as security.
Vehicle restrictions
Check whether age, value or other requirements apply.
Fees
Compare establishment and ongoing charges.
Can you use a personal loan to buy a car from a dealer?
Potentially, depending on the lender and permitted purpose of the personal loan.
You could arrange finance separately and then purchase the vehicle from the dealer.
The dealer may also offer its own vehicle finance option.
If both options are available, compare the rate, fees, term, repayment and total cost before deciding.
Do not assume dealer-arranged finance or externally arranged personal finance is automatically cheaper.
Should you arrange finance before visiting a dealership?
Understanding your borrowing budget before shopping can make it easier to compare vehicles based on what you can realistically afford.
You can then compare any dealer finance offered with the alternative finance you have explored.
This can help separate the decision about which car to buy from the decision about which finance arrangement is most suitable.
Remember that any initial or conditional finance assessment may still depend on the vehicle you ultimately choose.
Which is better for a first-time car buyer?
There is no single product that is automatically best for every first-time buyer.
Someone with limited credit history may receive different options depending on the lender.
A dedicated car loan can provide a clear vehicle-finance structure, while a personal loan may offer different flexibility.
First-time buyers should pay particular attention to the amount borrowed, loan term and complete ownership budget.
Insurance, fuel, servicing and repairs still need to fit alongside the finance repayment.
Which is better if you are self-employed?
Self-employed borrowers may potentially access either type of finance depending on the lender and their circumstances.
The key issue is often how income is demonstrated rather than whether the product is labelled a car loan or personal loan.
Different lenders can have different documentation requirements for self-employed applicants.
Compare the actual finance available rather than assuming one type of loan is easier for business owners.
Car loan vs personal loan for a work vehicle
If the vehicle will be used for business purposes, there may be additional considerations around ownership and finance structure.
A personal car loan and business vehicle finance are not necessarily the same thing.
Tax and accounting treatment can also depend on how the vehicle is owned and used.
If a vehicle is being purchased for business use, seek appropriate accounting or tax advice rather than choosing finance based only on perceived tax benefits.
When each option might be worth considering
| Situation | Car loan may suit | Personal loan may suit |
|---|---|---|
| Newer vehicle | Where an eligible secured car loan is competitive | Where an alternative personal loan has better overall terms |
| Older vehicle | If it meets the lender's vehicle requirements | Where additional vehicle flexibility is required |
| Private sale | Where the lender supports private vehicle purchases | Where the lender permits the loan to be used for the purchase |
| Need broader use of funds | Less likely if finance is specifically tied to the vehicle | Potentially more flexible depending on product rules |
| Lowest total cost | Whichever actual offer has the better total cost | Whichever actual offer has the better total cost |
How to compare a car loan and personal loan properly
Start by comparing the same amount of borrowing.
Then compare the actual interest rate offered for each loan.
Add all applicable establishment and ongoing fees.
Compare similar loan terms so that one option does not appear artificially cheaper simply because it runs for longer.
Check the regular repayment and total amount repayable.
Finally, consider any security arrangements, vehicle restrictions and early-repayment conditions.
Car loan vs personal loan comparison checklist
Compare the same loan amount
Make sure the comparison starts with the same amount of borrowing.
Check the actual rate
Use the personalised rate offered rather than headline advertising.
Add the fees
Include establishment and other relevant costs.
Compare terms
Make sure one loan is not simply being stretched over longer to reduce the repayment.
Check security
Understand whether the vehicle is being used as security.
Compare total cost
Look at total repayments before making your final decision.
Is one option always better?
No. A car loan can be the better choice for one borrower while a personal loan may be more suitable for another.
The answer depends on the specific lender offers, vehicle and individual circumstances.
A secured car loan may provide competitive pricing but come with vehicle-related conditions.
An unsecured personal loan may provide additional flexibility but may have different pricing.
Choose based on the complete offer rather than a general rule about which product is better.
Explore your vehicle finance options
Explore your vehicle finance options
AutoLoan partners with Simplify Finance. Simplify can assess vehicle finance options from its panel of 10+ lenders based on your application, subject to lender criteria and approval.
Get Your Loan Match →How AutoLoan helps with car finance
AutoLoan provides information to help New Zealanders understand vehicle finance and compare the factors that affect borrowing.
AutoLoan itself is not a lender and does not approve finance.
When you proceed through AutoLoan, the finance application is handled by our finance partner, Simplify Finance.
Simplify can assess available vehicle finance options through its panel of 10+ lenders.
The relevant lender determines whether finance is approved and the interest rate, fees and terms that apply.
Car loan vs personal loan NZ: key things to remember
A car loan is designed around vehicle finance, while a personal loan is a broader form of borrowing that may offer different flexibility.
Some car loans are secured against the vehicle, while personal loans may be secured or unsecured.
Neither product is automatically cheaper.
Compare the actual interest rate, fees, term, repayments, total amount repayable and security arrangements.
Think about how the vehicle will be purchased and whether any vehicle restrictions apply.
The best option is the one that is affordable and suitable for your circumstances based on the actual finance available.
Frequently Asked Questions
Is a car loan better than a personal loan in NZ?
Not necessarily. The better option depends on the actual interest rate, fees, security, loan term, vehicle and your individual circumstances.
What is the difference between a car loan and a personal loan?
A car loan is generally intended specifically for vehicle purchases and may be secured against the vehicle. A personal loan can have broader permitted uses and may be secured or unsecured.
Are car loan interest rates lower than personal loan rates?
Not always. Rates depend on the lender, product and applicant. Compare the personalised offers available to you.
Is a secured car loan cheaper than an unsecured personal loan?
It can be, but not necessarily. Security can affect lender pricing, although borrower circumstances, fees and other loan terms also matter.
Can I use a personal loan to buy a car?
Potentially, depending on the lender's permitted loan purposes and approval criteria.
Can I use a personal loan to buy a used car?
Potentially. The loan purpose rules depend on the lender, and you should still carry out appropriate checks on the used vehicle.
Can I use a personal loan for a private car sale?
Potentially, depending on the lender and product. Compare this with dedicated private sale vehicle finance where available.
Which is better for an older vehicle?
It depends on lender vehicle requirements and the actual finance offers. Some personal loans may offer additional flexibility where an older vehicle does not meet secured car loan criteria.
Does a car loan require a deposit?
Not necessarily. Deposit requirements vary between lenders, vehicles and applicants.
Does a personal loan require a car deposit?
A personal loan generally approves a loan amount rather than having a vehicle deposit requirement in the same way as some vehicle finance. Contributing your own money simply reduces how much you need to borrow.
Which is easier to get approved for?
Neither is universally easier. Approval depends on the lender, loan product, income, expenses, debts, credit profile and requested amount.
Does my credit score matter for both loans?
Yes. Credit information can be relevant to both car loan and personal loan applications.
Can I get either loan with bad credit?
Potentially, depending on the lender and your circumstances. Adverse credit may affect eligibility, pricing and terms.
Which loan has lower repayments?
Repayments depend on the amount borrowed, rate and term rather than the product name alone.
Can I sell a car that has a secured car loan?
Potentially, but the outstanding finance and security interest generally need to be dealt with appropriately as part of the transaction.
Can I sell the car if I bought it with an unsecured personal loan?
The loan is not necessarily tied to the vehicle in the same way as secured car finance, but you remain responsible for repaying the personal loan according to its terms.
Which loan is better for a first-time car buyer?
There is no universal best option. First-time buyers should compare rates, fees, loan terms, security and total cost based on the actual offers available.
Can self-employed borrowers use either option?
Potentially, yes. Self-employed income may require different supporting information depending on the lender.
Does AutoLoan provide personal loans?
AutoLoan.nz is not a lender. AutoLoan partners with Simplify Finance for vehicle finance applications. Available finance depends on Simplify's lender panel and the relevant lender criteria.
This article provides general information only and does not constitute financial advice or an offer or guarantee of credit. Car loans and personal loans can differ in security, rates, fees, terms, permitted uses and eligibility. Actual finance options depend on the applicant, lender and vehicle. AutoLoan.nz is not a lender. Vehicle finance applications through AutoLoan are handled by our finance partner, Simplify Finance, and are subject to lender assessment, criteria and approval.