Why Am I To Get A Car Loan but Not an Unsecured Loan?

Car Loans

Vehicles are substantial investments, which is why many individuals must take out a loan to be able to afford one. If this is the case with you, you may have already done your research on all available loan options. Which, hopefully lead to the understanding that obtaining a car loan is far easier than obtaining an unsecured personal loan. But why is this?

Differences Between Car Loans and Unsecured Loans

To better understand why auto loans are easier to obtain than unsecured loans, you must first learn more about how each of these types of loans differ. The key differences between the two revolve around collateral requirements, interest rates and the loan approval process:

  • A car loan is essentially a secured loan. A secured loan is backed by an asset of considerable value, such as a home, another vehicle or a savings account. The asset, in this case, is the vehicle itself. If you default on the loan, the lender would have legal grounds to repossess the vehicle. With unsecured loans, on the other hand, lenders assume a substantial risk, as there is no guarantee of repayment.
  • Because auto loans are secured, they often offer lower interest rates and better terms than personal loans. However, if you have poor or no credit, beware of unreasonable terms. Many bad-credit auto lenders take advantage of desperate individuals with bad or no credit by charging sky-high interest rates and offering difficult-to-meet terms.
  • To qualify for an auto loan, you must agree to the often strict terms of the dealer. For instance, many dealers will only finance vehicles of certain makes and models and with low mileage. With a personal loan, you can use the funding for whatever you want.

As you can determine by the differences in the two types of loans, obtaining an auto loan is easier because the lender assumes little to no risk, thanks to the collateral requirement. If you did not receive approval for a personal loan, there is still a good chance that you will qualify for a car loan.

Car Loan or Personal Loan: Which Is Right for You?

If you qualify for both an unsecured personal loan and an auto loan, you may wonder which to choose. If you go with the unsecured personal loan, you do not risk losing your vehicle should you default. On the other hand, personal loans often come with much higher interest rates than car loans because they are unsecured. How much higher? The difference is substantial.

The average auto loan rates in Canada range from 0.00% APR to 36%. Only lenders with bad or no credit are subject to the high average, and even then, lenders who shop around are likely to find something better, even if only marginally so. The average APR on personal loans, however, ranges from 2.99% to 54.90%. For individuals with good to excellent credit who can qualify for minimal to no interest on an auto loan, it often makes more financial sense to go with an auto loan over a personal loan.


Unsecured loans are difficult for anyone with less than stellar credit to get. If you don’t qualify for a personal loan, don’t be discouraged — chances are you can still qualify for an auto loan with reasonable rates and terms. For help finding the right loan with the best rates, use LoanConnect’s Personal Loan Search Engine


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