07 Sep Using a Personal Loan to Settle Your Car Loan

If you’re still paying off vehicle finance, using a personal loan to settle it outright is worth considering, but it isn’t automatically the right move for everyone. Here’s when it tends to make sense, what to check before you commit, and where the risks lie.

When Settling Your Car Loan Makes Sense

This approach generally works best once you already own the car outright in every way except the finance, and you’d rather deal with one straightforward personal loan repayment than a dedicated vehicle finance agreement.

It can also make sense if your auto loan was taken out on unfavourable terms and you want to consolidate it alongside other smaller debts into a single monthly instalment that’s easier to track.

The Maths You Need to Check First

Before you settle anything, get a formal settlement quote from your current vehicle finance provider. This figure includes the outstanding capital plus any settlement or early termination fees, and it’s often higher than your loan balance alone. Compare that total settlement amount, plus the interest rate on the new personal loan, against what you’d pay by simply continuing your existing car finance to the end of its term.

If the personal loan’s total cost is lower, or if it simply gives you a rate and monthly payment that suits your budget better, it’s worth pursuing.

The Risks Worth Weighing Up

A personal loan is unsecured, so while you’re no longer risking repossession of the car itself if you fall behind, the loan still shows on your credit profile and affects your affordability for future credit.

It’s also worth remembering that personal loan terms and vehicle finance terms don’t always match up exactly, so read the new agreement carefully rather than assuming it mirrors your old one.

Every Loan Wave loan is assessed under the affordability rules set out in the National Credit Act, so you’ll know upfront whether the new repayment genuinely fits your budget before you settle anything.

A Distinct Option From Traditional Refinancing

This is different from refinancing your car loan through another vehicle finance provider, which keeps the loan secured against the car itself. Using a personal loan instead removes that link entirely, since the loan is based on your affordability rather than the vehicle’s value.

If your current car is older, it’s also worth knowing that Loan Wave can assist with financing for vehicles over 10 years old, which isn’t always available through standard vehicle finance channels.

How to Get Started

Once you’ve confirmed your settlement figure and you’re comfortable with the numbers, the next step is much like any other Loan Wave application: your ID, proof of income, and proof of address, followed by an affordability assessment. If it stacks up, you’ll be given a clear repayment plan before any funds move, so there are no surprises once your old car finance is settled.

As with every Loan Wave product, the loan is offered through a lender registered with the National Credit Regulator, so you’re settling one regulated agreement for another rather than stepping outside the system.