Car finance vs Personal Loan: Which is Better for Buying a Car in 2026?
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2026/03/31
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Car finance and car loans in Ireland are both absolutely different. The former includes hire purchase and personal contract purchase deals exclusively available from car dealers, while car loans, also known as personal loans, are available from direct lenders. Choosing between the two types of financing is quite challenging. There is no single factor that helps you make the decision.
A car loan is a personal loan that you take out from a direct lender.
You are required to pay 10% of the car’s price upfront.
However, if your credit score is not up to scratch, you might be required to put down 20% deposit.
You will repay the debt in fixed instalments.
They will remain the same throughout the loan term.
The repayment length of these loans can be between three years and five years.
You do not have to put down collateral.
You will own the car from the first day of the car loan. However, your lender will have the upper hand, meaning you cannot sell your car unless you pay it off.
You do not have to have a good credit score to qualify for a personal loan. Some lenders accept applications from subprime borrowers as well, provided they deposit a large payment upfront.
There is no risk of losing any asset, such as your house, but your car might be repossessed in case you make a default.
You are absolutely free to drive your car the way you want. There are no restrictions on the mileage.
Car finance is a broad term used for various financial products available from car dealers. Car finance options include hire purchase, personal contract purchase, and contract lease.
Hire purchase
Personal contract purchase
Contract lease
With a 10% upfront deposit, you will pay down a fixed sum every month.
After the end of the contract, you will own the car.
Monthly payments will be smaller than those of hire purchase as they will be towards depreciation.
You will have to make the balloon payment at the end if you want to own the car, or you will return the car.
You will have to pay upfront fees.
Fixed monthly payments will cover the cost of rent.
Additional mileage covered will cost extra money.
You will have to return the car or renew a lease at the end of the contract.
The difference between car finance and car loans
Here is the difference between car finance and car loans:
Aspects
Car finance
Personal loans
Ownership
No
Yes
Upfront deposit requirement
Yes
Yes
Fixed monthly payments
Yes
Yes
Car repossession in case of default
Yes
No (but some lenders can as they still have the upper hand)
Purchasing from a car dealer
Yes – HP and PCP
No
A purchase option from a private vendor
No
Yes
A possibility of lower monthly payments
Yes - PCP
No
A possibility of owning a car at the end of the deal
Yes
Yes
An option of returning a car
Yes, only in case of PCP
No
Any annual mileage restrictions
Yes (PCP)
No
Car modification options
No
Yes
Upsides and downsides of car finance and car loans
Car loans
Car finance
Pros
Cons
Pros
Cons
You own the car from the beginning.
Subprime borrowers will struggle to qualify for these loans.
Subprime borrowers can also apply for car finance deals.
Interest rates are higher than those for personal loans.
Competitive interest rates for good credit borrowers.
You cannot return the car.
Flexible offers are made to spread the cost.
You will be tied to a longer repayment period.
You can buy a car from a private vendor or a car dealer.
There is no warranty or additional covers.
It can help ameliorate your credit score like personal loans.
There is a risk of exceeding mileage, which costs additional charges.
There are no restrictions on the mileage.
As compared to the total cost of the loan, the car’s value will be much less.
You have an option to either keep or return the car in case of PCP.
Despite not buying a car, you may have already paid the full cost of the car.
You can modify the car as and when you want.
It takes a few days to complete the process.
Monthly instalments are more manageable than personal loans.
The balloon payment could be difficult to pay off, delaying the ownership.
Is a personal loan cheaper than car finance?
Which of the options will actually help save you money depends on multiple factors such as your credit score, income sources and goals for using the car. While bad credit car loans are available, it is recommended that you improve your credit score to qualify for these loans. However, it is crucial that you research interest rates.
Each lender has their own method to determine the risk involved in lending you money. If they find you a highly risky borrower, they will charge high interest rates. Comparison websites will let you know what fees and interest rates lenders are charging. Based on this, you can choose affordable money lenders in Ireland like MyLoansBoat.
However, if your credit score is not stellar, car finance will be a better option. At the same time, if you do not want to own a car, car finance should be the best bet. Those who run a fleet of cars or who want to upgrade their cars after a short period of time should also consider car finance rather than car loans.
Do not forget that both will impact your credit score. If you fail to discharge your debt, you will see significant damage to your credit rating. If you pay it back on time, you will see an improvement in your credit score.
The bottom line
In order to buy a car, car loans and car finance can both be better options. It depends on your credit score, the goals of your purchase, and your affordability.