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Personal Loans for Motor Vehicles

There are several financing options for those who are looking to finance a car, the most popular option is a car loan, but you may also want to consider a secured or unsecured personal loan. A personal loan is a form of credit used to finance personal purchases.

Related: Vehicle and Equipment Finance.

How Does a Personal Loan Work?

There are a few differences between a car loan and a personal loan to buy a car.

A car loan is specifically designed to purchase a car with added features such as warranty add-on and can usually offer the borrower competitive rates. The amount you are able to borrow is generally the car purchase price only.

A personal loan allows you to apply for a loan amount to cover the purchase of your car and additional funds for insurances, modifications or even to consolidate outstanding debt. You are not required to provide the vehicle details when applying for this loan, but you are required to disclose what the loan will be used for. There are no restrictions on what type of car you can finance with a personal loan, new or second-hand, from a dealer or private seller. This is in contrast to a car loan where cars over a certain age will only be considered for finance.

Personal Loan Options

You will find a range of lenders offering what appears to be similar products so by comparing loan terms, affordability and conditions you are able to evaluate what best suits your needs.

Secured or unsecured, fixed or variable rates are some of the loan features you will need to consider.

A fixed rate personal loan provides the security of a guaranteed fixed rate for the duration of the loan term. This convenience of knowing exactly what your repayment amount will be allows you to budget and manage repayments more easily.

A variable rate personal loan has the added features of a redraw facility. With this you are able to draw the difference when needed and by making additional payments on your loan will save on interest and reduce the term of the loan. Due to fluctuating interest rates make sure you are able to absorb the difference in payments if the interest rate changes.

Many lenders will offer you conditional approval once your application has been reviewed so you are able to shop around, remain within budget and negotiate with dealers for the best price.

Personal Loan Interest Rates and Fees

Personal loans have various fees and charges that may apply. Depending on your borrowing capacity and credit history, interest rates can either be variable or fixed and generally attract higher than home loans.

Most loans have establishment fees to set up your account. Personal loans will have monthly or annual administration and account management fees so it is worthwhile asking your lender what these costs are, as they will be added to your monthly loan repayments. Additional fees will apply if you default on a repayment or late payment penalties fees added to your account. These may be daily late fees, direct debit dishonour fees and more.

Qualifying Criteria

The below documents is a good starting point to begin processing your loan application

  • Proof of income such as a recent pay slip or notice of assessment if you are self-employed.
  • 6 months bank statements
  • 100-point Personal identification such as ID, passport or Medicare card
  • Min age of 18
  • Be an Australian citizen or permanent resident
  • Have a good credit history

Additional documents that you may need to provide for a unsecured car loan would include:

  • Evidence of 12-month comprehensive car insurance
  • A tax invoice for the car you’re buying and information including engine number, VIN number, registration and purchase price

How to Apply for a Personal Loan to Purchase a Vehicle

All finance applications will be subject to a credit history check before you receive credit approval. Once your finance contract has been signed and once you have received the loan amount you are then able to use it to purchase the vehicle yourself along with anything else you needed the loan for.

You are able to choose the terms of your loan which can be for between one and seven years regardless if your loan is secured at fixed or variable rates. Car loans are typically between one and five years.

How much you can borrow is very much related to your credit history check and current financial position and your lender’s criteria there is no formal limit but in broad terms anything between $3,000 and $70 000.

Advice, Tips and Considerations

Don’t forget to purchase car insurance! If you are purchasing a car and using a personal loan to finance it, it would be wise, at the very least to have third party cover. If you are involved in an accident and the car is a write-off you are still responsible for paying back the loan.

Any financial institute will look at your credit rating to asses if you are an investment risk or not and this report will largely determine your loan rates and amounts you qualify for. Having a credit application rejected creates a black mark on your credit history. Before you apply it may be beneficial to obtain a copy of your credit check to prepare for any additional documentation that may be required.

Frequently Asked Questions

Is it possible to increase the amount of my unsecured Fixed Rate Personal Loan?

Any request made to increase the amounts will be treated as a new application, so all the fees and new interest rate negotiations will accompany this request and yes, you can apply to increase the amount at any time.

How can I reduce my monthly loan payments?

The most obvious change would be to borrow less. Reducing the amount, you borrow even a little will reduce the monthly repayment and interest on the total amount. Extending the loan term will also bring down the monthly payments but this option will increase the interest paid because of the extended time you take to pay it off.

What are the advantages of pre-approval?

Some people will request pre-approval on a loan so that they know up front if they qualify for a loan and what amount they are likely to be approved for. Applying for a pre-approval means you are getting an approved loan without receiving the funds, this way you will know estimated monthly repayment amounts and if this fits within your budget prior to looking for a car.

Is it easier to get a personal loan or a car loan?

This really is based on an individual’s financial position at the time of application and the lenders qualifying criteria.
Personal loans are considered easier to obtain since you do not require any security as they are unsecured loans where as a car loans will use the car you are purchasing as collateral. Ultimately your ability to prove financial stability will determine which is easier to apply for.

Download our First Home Buyer Guide. It includes over 40-pages that'll guide you on your property purchase journey.

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