The main differences between personal loans and secured car loans are that a personal loan can be used for many different purposes whereas a secured car loan is for the purpose of purchasing a vehicle. The other main difference is that with a secured car loan, the lender has a financial interest over the vehicle being purchased by taking an encumbrance over that car that would be shown on a public register.
Due to the fact the lender has a financial interest over the vehicle, a secured car loan is deemed a lower risk lend, as if the loan is in default, the lender has legal right to repossess the vehicle, offering some security, but with a personal loan, in most cases would be unsecured, therefore if the loan was in default, the lender can only chase the borrower for its outstanding debt.
As a secured car loan is lower risk for the lenders, this often can result in a substantially reduced interest rate for the borrower and at times can save significant interest costs over the term of their loan.
As they use the vehicle as security over the loan, lending criteria can often be a lot easier to obtain a secured car loan as opposed to a personal loan and there may be options to reduce the lenders risk further on a secured car loan, by requesting deposit to reduce the amount financed against the security, so if the lender was to repossess and sell the car, they could recoup all their costs without having any shortfall amount.
However, with an unsecured loan, if you ever wanted to sell what you purchased with your personal loan, you would not have to payout the loan as part of the sale unlike a secured car loan. This can sometimes leave you in a position where the sale price of the car is less than the payout on your loan, commonly known as “negative equity”.
There may not be as many options for personal loans as there are for secured car loans with brokers, so trying to place you with the right lender that you would fit their criteria, could prove more difficult and if you were to approach a lender yourself, you may be taking a punt as to whether they would approve you based on their lending criteria for personal loans.
In most cases it would be cheaper to take a secured car loan, but not in all cases, so it is recommended to speak to a professional to assist with your decision making, so that you can weigh up all of your options.