Car Loan vs Personal Loan: Which Costs Less?

Last updated: October 2026

If you're buying a car, you can take a dedicated car loan or use a personal loan. They work the same way, a fixed EMI over a fixed tenure, but the rate makes a big difference to what you pay.

The key difference

• Car loan: secured against the car, so rates are lower (often around 8.5-10%). The car is hypothecated to the lender until you repay.
• Personal loan: unsecured, so rates are higher (often 11-24%), but there's no lien on the car and approval can be quicker.

A worked example

Borrowing ₹8,00,000 for 5 years:

• Car loan at 9.5%: EMI ₹16,801, total interest ₹2,08,089
• Personal loan at 14%: EMI ₹18,615, total interest ₹3,16,876

The personal loan costs about ₹1,08,787 more in interest for the same car.

When a personal loan can make sense

• Buying a used car that lenders won't finance well.
• You want the car free of any lien, or need the money very quickly.
• You plan to repay within a few months, so the rate gap matters less.

For most new-car purchases, a car loan is the cheaper choice. Whichever you pick, a bigger down payment and a shorter tenure cut the total cost most.