When you’re looking to finance a vehicle in Australia, you’ll quickly realise that “car loan” isn’t the only option on the table. Personal loans are widely used for vehicle purchases too, and depending on your circumstances, one may be significantly more advantageous than the other. At Journey Finance, we help borrowers understand their options so they can make an informed decision — not just an assumed one.
This guide compares personal loans and car loans side by side, covering interest rates, flexibility, eligibility, and the scenarios where each one makes the most sense.
What Is a Car Loan?
A car loan (also called a secured vehicle loan or motor vehicle loan) is a loan specifically designed for purchasing a vehicle. The car acts as collateral — the lender holds a registered interest in the vehicle until the loan is fully repaid. If you default, the lender has the right to repossess the car to recover the outstanding debt.
Because the loan is secured against the asset, interest rates are typically lower than for unsecured borrowing, and loan terms can be longer — usually between one and seven years. The vehicle must generally meet certain criteria set by the lender, including being of a minimum value and registered on Australian roads.
What Is a Personal Loan?
A personal loan is a general-purpose loan that can be used for almost anything — including purchasing a vehicle. Personal loans can be secured (using an asset as collateral) or unsecured (no collateral required). For vehicle purchases, an unsecured personal loan is the most common type used when the vehicle doesn’t meet secured loan requirements or when the borrower wants more flexibility.
Because unsecured personal loans carry more risk for the lender, interest rates are generally higher than for secured car loans. However, the application process is often simpler, approvals can be faster, and the loan can be used for vehicles of any age — including very old or classic cars, project vehicles, or vehicles that don’t hold traditional resale value.
Interest Rate Comparison
In Australia, the interest rate gap between secured car loans and unsecured personal loans can be significant. Secured car loans from competitive lenders can offer rates from as low as 6% to 8% per annum for borrowers with excellent credit. Unsecured personal loans for vehicle purchases typically range from 9% to 20% per annum depending on the lender and the borrower’s credit profile.
Over a five-year loan term, this rate difference can translate into thousands of dollars in additional interest. For example, on a $30,000 loan at 7% versus 14%, you’d pay approximately $4,500 more in interest with the unsecured personal loan. This makes the interest rate one of the most important factors in deciding which product to use.
Loan Term and Repayment Flexibility
Car loans typically offer terms of one to seven years, with the ability to include a balloon payment at the end of the term to reduce monthly repayments. Personal loans are usually offered over one to five years, with fewer options for customisation.
Both loan types can typically be paid off early without penalty from most lenders — though it’s worth confirming this before you sign, as some lenders charge early repayment fees.
When a Car Loan is the Better Choice
A secured car loan is generally the better option when:
- The vehicle is relatively new (typically under ten years old) and meets lender criteria
- You want the lowest possible interest rate
- You’re purchasing from a dealer or private seller with a clear title
- You need a longer loan term (up to seven years) to reduce monthly repayments
- You want a balloon payment option to manage cash flow
When a Personal Loan is the Better Choice
An unsecured personal loan may be more appropriate when:
- The vehicle is older (fifteen or more years) and doesn’t meet secured loan criteria
- You’re purchasing a classic, vintage, or project vehicle
- You want to combine the vehicle purchase with other costs (e.g., accessories, insurance, registration)
- The loan amount is small (under $10,000) and the convenience outweighs the rate difference
- You prefer not to have the lender hold a security interest over your vehicle
What About Personal Travel Loans?
Journey Finance also offers personal travel loans — a type of personal loan designed to finance holiday expenses, flights, accommodation, and experiences. While not vehicle-related, travel loans follow many of the same principles as personal loans and are available to eligible borrowers through our lender panel.
How Journey Finance Can Help You Choose
Choosing between a personal loan and a car loan isn’t always black and white. The best product depends on your credit profile, the vehicle you want, your budget, and your personal preference. That’s where Journey Finance adds real value — we assess your situation holistically and recommend the product that genuinely delivers the best outcome for you.
Our brokers don’t push any particular product — we compare across a panel of more than 30 lenders and present you with options that match your needs. Whether you end up with a secured car loan, an unsecured personal loan, or a different product altogether, you’ll make the decision with complete information.
Ready to find out which option is right for you? Apply now and one of our brokers will provide a personalised comparison within one business day.