Personal Loan Vs Car Loan: Which Loan Should You Choose To Finance Your Car?

When the pandemic shut down all public utilities, many realized the importance of owning a vehicle. This collectively led to an increased desire among the general public to purchase a car. However, buying a vehicle is not an easy decision. The decision to finance a car is as tough as purchasing one. Lenders offer various options to help people fund their vehicles. Two of the most coveted options are

Car Loan

Both options can be used to finance the car. However, which loan works best? We’ve put together some tips to help you make an informed decision.

The difference between a personal loan and a vehicle loan

  • Personal Loan

Personal loans are typically unsecured and have several different uses. They may be used for various reasons, such as debt consolidation, house renovations, and vehicle repair. Personal loans can finance almost any expense, even purchasing a new car.

  • Vehicle Loan

The vehicle you intend to purchase in a car loan serves as collateral, meaning the car is the loan’s security. Throughout the loan, you will be required to pay off fixed installments. Your lender can seize your vehicle if you default on repayments.

Let’s look at the pros and cons of these loans –

Personal LoansCar Loans
  • No upfront payment: Getting a personal loan to purchase a car is an excellent option since you do not need to make a down payment.
  • Default Consequences: Defaulting on the loan will not cause your lender to repossess your car, unlike the case of a car loan.
  • More flexible: You can use a personal loan to purchase any car you like, provided you can afford to repay the loan. Moreover, you can calculate your EMIs using the personal loan EMI calculator on the lender’s website.

Cheaper interest rates: Car loan interest rates are lower than personal loans. Lenders can offer lower interest rates on car loans because they have the car as collateral for the loan.


Costlier: Personal loan interest rates are usually higher than car loans. This is because of the unsecured nature of personal loans. Personal loans have elevated interest rates because they have a greater risk of default.

  • Eligibility: The personal loan eligibility criteria are challenging to meet more requirements.


  • Requirement for a down payment: Most lenders will require a down payment. When you do not have enough savings for a down payment, receiving approval for a car loan is not easy.
  • Repossession of your car: When you miss payments or default on your loan, your lender can repossess your vehicle kept as collateral for the loan.


Generally, people opt for vehicle loans if they are sure not to default on their EMIs; they risk having the lender repossess their car. On the other hand, personal loans are preferred by people who do not want to compromise their assets as collateral. Personal loans are also preferred when people don’t have enough savings for an upfront token. However, higher individual loan interest rates often deter people from opting for personal loans for purchasing vehicles.

In light of the above, check the personal loan eligibility criteria and predetermine your EMI using the personal loan EMI calculator before opting for the same.