When it’s time to buy a car, deciding between a car loan and a personal loan can be an important part of the process. Both loan types have their benefits, so finding the right one depends on your financial goals, the car you’re interested in, and how you prefer to handle repayments. Let’s look at both options closely—covering interest rates, loan flexibility, and the secured or unsecured nature of each—to help you choose the best fit.

When a car loan might be your best option

Car loans are specifically designed for purchasing vehicles and come with features that can make them the preferred choice if you’re after lower interest rates and structured repayment terms. Here’s when a car loan may work best:

Lower interest rates for newer cars: Car loans usually offer lower interest rates, especially for newer models. Lenders may provide competitive rates for vehicles under two years old since these cars retain their value, making them a lower risk. Coastline’s secured car loans, for instance, offer attractive rates for cars that meet certain age requirements.

Secured by the car: The car acts as collateral, meaning the loan is typically secured by the vehicle, which can mean a lower interest rate.

Tailored terms for car purchases: Car loans offer terms specifically designed for buying vehicles. You can often select between fixed and variable rates and set repayment terms that align with your car’s expected lifespan, helping you manage costs easily.

When a personal loan might be your best option

While car loans are often the go-to choice, personal loans can be better in certain situations, particularly when flexibility or unsecured options are preferred:

Unsecured loan option: Unlike a car loan, personal loans are often unsecured, meaning no need to use your car as collateral. You retain full ownership of the car from day one.

Flexible use of funds: Personal loans allow for broader spending beyond just the car. This flexibility lets you cover other car-related expenses like registration, insurance, or repairs with a single loan.

Ideal for older or lower-cost cars: If you’re buying an older or lower-cost car that doesn’t meet the typical requirements for a car loan, a personal loan might be your best option. Car loans usually have restrictions on vehicle age and value, whereas personal loans give you the freedom to borrow without these limitations.

Comparing interest rates

Interest rates are a key factor when choosing between a car loan and a personal loan. Here’s how each typically measures up:

Car loan rates: Since car loans are secured by the vehicle, they often come with lower interest rates. You’ll typically find both fixed-rate and variable-rate options, so you can choose based on whether you prefer consistent payments or the flexibility to adjust as rates change.

Personal loan rates: Personal loans usually come with higher interest rates, especially if they’re unsecured, as there’s no collateral. This may increase overall costs, so consider your budget when choosing this route.

If the lowest interest rate is your main priority, a car loan will likely be the better choice. But if flexibility or avoiding collateral is more important, a personal loan might be worth considering.

Loan repayment flexibility

Car loans and personal loans differ in terms of repayment flexibility:

Car loans: Car loans often have fixed repayment terms, usually between one to seven years, and many come with fixed monthly payments, which means your repayments stay consistent. Some car loans, like Coastline’s variable rate options, can even adjust with the market, though this comes with the chance of payments increasing or decreasing.

Personal loans: Personal loans tend to offer more flexibility. Depending on the lender, you can choose repayment terms ranging from one to five years. Many personal loans can also be paid off early without penalties, though it’s best to check the terms of the loan first.

Which loan is right for you?

Choosing between a car loan and a personal loan ultimately depends on your financial goals and the car you want.

Both car loans and personal loans offer effective ways to finance a car, each with its own advantages.

By weighing your needs, budget, and comfort with risk, you can pick the loan type that best suits your journey toward owning your next vehicle.

Find out more about Coastline’s car loan options.