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How to use a personal loan to buy a car

Posted 05.05.2021
How to use a personal loan to buy a car

A personal loan is just about handy for anything: debt consolidation, holidays, weddings, home renovations – you name it. But can you use a personal loan to buy a car? The quick and short answer is yes. Keep reading to find a detailed explanation on how to finance your next set of wheels via a personal loan. 

Figure out the type of personal loan you want

When choosing a personal loan that best suits your car buying needs, you’ll first need to decide on a loan type. Typically, you can choose from the following personal loans:

  • Secured personal loans. Your vehicle acts as security for the loan, meaning the lender can repossess it if you default. Secured personal loans have lower rates, but there may be restrictions on the type of car you can buy. For instance, the lender may require the car to be fully insured and not more than five years old.
  • Unsecured personal loans. Most personal loans are unsecured and therefore have higher rates than secured options. Additionally, Australian lenders typically offer up to $50,000 for unsecured loans vs the $100,000 that’s sometimes offered for secured loans. However, an unsecured loan is still a great option for purchasing a used car. 
  • Fixed rate personal loans. This option protects you from interest rate increases. You can enjoy peace of mind from having fixed repayments that stay the same over the life of the loan.
  • Variable rate personal loans. While your repayments may fluctuate, most variable rate loans come with the added benefit of potential interest savings when rates swing down. They also allow you to make extra repayments and exit early with no penalty.

Shop around for the best car loan option

Don’t just settle for the first offer that catches your fancy. Comb through the available options to find the lowest rate you can get with your current credit score. 

Compare fees and charges plus other factors like repayment frequency, amounts, and terms. Look for lenders that give you a loan quote or rate estimate before you apply. Generally, this won’t affect your credit score since the lender doesn’t do a hard credit check.

Find out if you can get pre-approval

In some cases, you have to shop for a vehicle before applying. However, pre-approval allows you to shop around with more confidence since you already know how much money you have on hand. This confidence can also boost your negotiating skills, helping you to get the best price.

Calculate your monthly car loan repayment

You can use BestFind’s car loan calculator to narrow down an affordable loan amount and repayment. Considering that personal loans have terms of up to seven years, this is an essential step that helps you avoid long-term financial repercussions.

Finalise your car loan application

Nowadays, you can apply for most loans online. With BestFind, it’s as easy as clicking “Go to Site” for the lender you want in our comparison table. Generally, you have to be at least 18 years old and an Australian permanent resident to qualify. Additionally, you must have a regular income and a good credit record.

Lenders may ask for supporting documents, such as your ID, payslips, bank statements, or proof of residence. If the application gets approved, the next thing is accepting the offer and then receiving the funds in your bank account.

Shop for your car

This is always the thrilling part. Your options here include buying at an auction, car dealership, or from a private seller. Buying from a dealership guarantees more options and the benefit of a warranty. In contrast, buying from a private seller is riskier, and you’ll need to carry out a thorough inspection to ensure you’re getting a quality and reliable vehicle.

Auto loans vs personal loans

Here’s an interesting fact: Most Australian lenders have consolidated their personal loans with their car loans, so you may find there’s hardly any difference between the two. However, strictly speaking, most personal loans are unsecured, while you’ll find that most car loans use the car you’re buying as security for the loan. 

As a result, secured car loans have lower rates than unsecured personal loans. Also, some lenders design their car loans so they are only suitable for purchasing motor vehicles, such as cars, boats, caravans, and motorbikes.