Car Loans Vs. Personal Loans in Canada: What's The Difference?

If you’re planning to buy a new car anytime soon, it’s natural to want to explore finance options. Two that will very likely come up are car loans vs personal loans.

Both give you money to buy what you want but what’s the real difference between the two? Is one better than the other? Let's dive right in with this quick article.

Buying a Vehicle With a Personal Loan

Personal loans provide funds to buy anything you like. The lender assesses you as a borrower and makes a lending decision based on your credit score, payment history, and the usual criteria.

Personal loans are usually unsecured but you can also get secured personal loans if you use it to buy a more significant asset. Unsecured personal loans will have higher interest than secured loans and more stringent lending criteria.

You can buy a car with a personal loan.

The advantage is that you can buy it from anywhere, including a private sale, and it won’t impact the interest or whether you’re approved or not.

The disadvantage of personal loans is strict lending criteria, usually only for those with good credit and higher interest rates.

Buying a Vehicle With a Car Loan

Car loans, as the name implies, are for buying a car. You cannot use a car loan to buy other things like you can with a personal loan.

car loans are usually secured against the car you buy as it acts as collateral for the loan. There are unsecured loans around but they are often expensive and hard to come by.

The nature of the auto loan, that it’s secured on the car means lending criteria are often slightly lower and they come with lower interest rates. You can even get an auto loan with poor or fair credit scores.

The advantage of auto loans is lower interest rates and lower acceptance criteria.

The disadvantage is that you don’t own the car until the loan is paid off, you cannot buy a car privately and you’ll usually need a down payment as part of the deal.

Car Loans Vs. Personal Loans

As you can see, while the two products are similar, they are not the same. A personal loan has more flexibility in how and where you spend it but is harder to qualify for and has a higher interest rate.

An auto loan is easier to get and charges less interest but will be secured on your car and you can only buy from dealerships.

Both finance options get you what you want, just in slightly different ways. Financially, the auto loan makes sense as it charges less interest. You will want a down payment and to buy from a dealership though.

If you don’t mind paying a little more, you can buy a car from anyone, anywhere with a personal loan. But you do pay for that privilege.