Buying a Car with a Personal Loan - Is it Feasible?

    Most of us dream of owning a vehicle someday. Today, all major banks provide car loans with attractive interest rates for customers. In fact, CGSCIMB reported that 10.4% of the industry loans are accounted by auto loans.

    If you are looking for alternatives to finance your purchase, there is an option of taking a personal loan. However, it’s important to understand all the pros and cons before you take a personal loan for a car.

    Let’s start with the benefits of opting for a personal loan to get a car.

    1. Better Margin of Finance than Used Car Loans

    Used cars usually come with a margin of finance of 80% to 90%. You don’t get full financing for a used car. Sometimes it is very difficult to manage the remaining 10% to 20% on your own. For instance, let’s say you want to buy a used car worth RM40,000. When you approach a bank for a car loan, they are willing to offer just 80% margin of finance, which is RM32,000. Not everyone can manage the remaining RM8,000 with ease, especially if this is an urgent purchase. You can take up a personal loan to pay the remaining amount.

    2. You Get Ownership of Your Car Soon

    When you opt for a personal loan to finance your new car purchase, you are entitled to the ownership of the vehicle as soon as you pay the amount to your car dealer. Even though you are repaying the personal loan, you own the car. You can do whatever you want to since it’s your car.

    However, when you opt for a car loan, the bank may put your car as collateral. You won’t be entitled to the ownership of the vehicle until and unless you pay the entire amount.

    3. You Can Sell the Car If You Have To

    As the owner of the car, you can sell it whenever you want to. This is not possible when you take a car loan as the bank possesses your car until the tenure of the loan is complete.


    1. Higher Rate of Interest

    Most personal loans come with a higher rate of interest when compared to car loans. While personal loans in Malaysia are offered from 5% to 9% p.a., you can easily get car loans from just 2.5% to 6% p.a. With car loans being offered at lesser rates of interest, most Malaysians will opt for car loans over personal loans. The rate of interest of personal loans are even higher when you have a poor credit score.

    2. Longer Tenures

    If you want to purchase a car instantly and want it for a longer tenure, you can opt for a car loan. Though personal loans are approved quickly, they have shorter tenures in comparison to car loans. In Malaysia, the tenures of personal loans and car loans are up to 7 years and 9 years, respectively. If you have an SUV in mind, but can’t afford high monthly instalments, you can opt for a longer tenure to pay off the loan easily.

    3. Not Designed for Car Purchases

    Though you can get a personal loan easily for any of your needs, they are not specifically designed for car purchases. Car loans, on the other hand, have many categories depending on the type of loan you want. For instance, in Malaysia, there are three types of car loans – new car loan, used car loan, and reconditioned and unregistered car loan. All these loans have different margin of finance, tenure, and rates of interest, giving you the option to make a choice.


    If you’re planning to buy a car, go for car loans. It’s a more viable option considering you have to pay low interest and repay through a longer period of time. Although, you can take up a personal loan to finance 10%-15% of the car’s price. However, it’s advised that you pay that amount in cash/cheque instead of taking a loan. According to Bank Negara, car loan applications and car purchase increased during the three-month tax holiday from June to August 2018.  Compare car loans and choose the scheme that suits your requirement.


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