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Is Car Finance Seen As a Personal Loan?

Car finance can be seen as a type of personal loan, although it is structured differently than other types of consumer loans. Car finance is a loan that allows you to purchase a vehicle without having to pay the entire cost upfront. Instead, the lender provides the loan funds and you make monthly payments until the loan is paid off.


Differences Between Car Finance and Personal Loan

Car finance loans are generally secured against the asset itself, meaning that if you were to default on your payments, then the lender could repossess the vehicle they have provided you with. This means that car finance loans tend to have lower interest rates than other types of personal loans. The downside of this security measure is that if you do miss payments or default on your loan, then it could affect your credit rating in a negative way. 

The term for car finance varies depending on both your credit rating and the value of the vehicle – if you have good credit and a new or popular model vehicle, then your term could be up to five years. However, if you’re buying an older car from a private seller or your credit isn’t great, then lenders may only agree to terms lasting three years or less.

How Much Money You Can Borrow For Car Finance?

When it comes to how much money you can borrow for car finance, this will depend on how much money you can afford to pay back each month and what kind of vehicle you are looking at purchasing. Generally speaking, lenders won’t offer more than 80-90% of the value of the car so as to protect themselves from any major losses should something go wrong during the repayment period of time.

Additionally, most lenders will require that borrowers make an initial down payment between 5-20% before entering into an agreement with them for financing.

Is Car Finance Easy To Get Approved For?

Car finance can be a good option for many people looking to purchase a car, and it is often much easier to be approved than it would be for a personal loan. Most lenders offering car finance have more lenient requirements and criteria than traditional banks, which makes them an attractive choice for those who may struggle to get approved elsewhere.

The terms of the loan are usually based on the value of the car being purchased, with lower rates and down payments available if the vehicle has significant equity. Many lenders also offer flexible repayment terms that can make it easier for a borrower to meet their monthly obligations.


Car finance can be an attractive option for those who don’t have enough savings or disposable income available upfront to purchase their desired vehicle outright – but it’s important that potential borrowers consider all aspects carefully before taking out such a loan. 

As always with any form of borrowing, it’s important for individuals to be aware of any associated fees or risks and make sure they fully understand all aspects involved before committing to a financial contract such as this one.

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