Can You Use a Personal Loan To Buy a Car? Steps To Take
You can use a personal loan to buy a car. It may make sense if you're buying from a private seller, purchasing an older vehicle or want the title in your name right away. An auto loan may be the better option if it offers a lower rate or more affordable repayment terms.
Personal loans usually have higher rates and shorter repayment terms than auto loans, so compare both options before you borrow. Here's when using a personal loan for a car may make sense, and when another financing option could cost less.
MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $100,000 from our top providers. You can compare rates, terms and fees from different lenders and choose the best offer for you.
Key Takeaways
You can use a personal loan to buy a car from almost any seller. It works well for private sales, older or high-mileage vehicles, or when you want the title in your name right away.
Auto loans usually cost less because the car secures the loan. A personal loan is unsecured, so rates run higher and terms are often shorter.
A personal loan may let you bundle the car's price with taxes, fees and repairs. You borrow one lump sum and repay it in a single monthly payment.
Your credit score shapes your rate and approval odds. Many lenders prefer a score in the mid-600s, so check your report for errors before you apply.
Prequalify with at least three lenders before you commit. Compare your bank, a credit union and an online lender on rates, fees and terms with a soft credit check.
Summary generated by AI, verified by MoneyLion editors
Personal Loan vs. Auto Loan: What's the Difference?
At a glance: Auto loans generally offer lower interest rates because the vehicle serves as collateral, while personal loans provide more flexibility for how you use the funds and what type of vehicle you can buy.
While both allow you to receive funding upfront, these are the key differences between personal and auto loans:
Feature | Personal Loan | Auto Loan |
|---|---|---|
Collateral | Unsecured: Your personal creditworthiness is the only backing. The lender cannot repossess your car if you default on the loan. | Secured: The vehicle itself is the collateral. The lender can repossess the car if you fail to make payments. |
Interest rates | Typically higher: Rates are higher because the lender takes on more risk without having collateral to secure the loan. | Typically lower: Rates are lower because the car as collateral reduces the lender's financial risk. |
Loan usage | Flexible: Funds can be used for the car's price plus extra costs like taxes, registration and even immediate repairs. | Restricted: Funds can only be used for the purchase price of the specific vehicle being financed. |
Vehicle restrictions | None: Personal loans generally don't impose the same vehicle age, mileage or seller restrictions as auto loans. | Strict: Lenders often have rules on the vehicle's age, mileage and condition, and may not finance private sales. |
Ownership | Immediate: You are the sole owner from day one. The car's title is generally issued in your name with no lienholder listed. | Delayed: The borrower owns the vehicle, but the lender typically has a lien on the title, until the loan is repaid. |
Pros and Cons of Using a Personal Loan To Buy a Car
Personal loans offer more flexibility than traditional auto financing, but that flexibility can come at a higher cost.
Pros | Cons |
|---|---|
Can work for private-party purchases | Annual percentage rates (APRs) may be higher than auto loan rates |
Fewer restrictions on vehicle age or mileage | Repayment terms may be shorter |
Vehicle isn't used as collateral for the loan | Origination or other lender fees may apply |
Can cover taxes, fees, repairs or other expenses | Loan amount may not cover the full purchase cost |
Funds may be available quickly | Missed payments can hurt your credit |
When Does Using a Personal Loan To Buy a Car Make Sense?
Choose a personal loan if any of the following apply to your situation:
You're buying from a private seller.
You're buying an older, classic or high-mileage vehicle.
You want the title in your name without an auto-loan lien.
You need financing for costs beyond the vehicle's purchase price.
Buying From a Private Seller
When you're buying a car from a private seller, traditional auto financing may not be available. Even if it is, the personal loan may have a lower interest rate.
Some personal loan lenders offer fast funding, which can make it easier to pay a private seller once you're approved.
You're Buying an Older, Classic or High-Mileage Car
Banks and other lenders rarely finance older, classic or even high-mileage, late-model cars through a traditional auto loan. Some lenders offer classic car loans, but you may be able to secure a better rate with a personal loan.
You Want To Own the Title Immediately
When you take out an auto loan, you're putting your vehicle at risk. If you can't make the loan payments, your lender can repossess the vehicle. A personal loan allows you to own the title to the car immediately.
There may be other reasons you want to own the title, too. For instance, if you purchase a vehicle at an auction and want to resell it for a profit, you'll want to own the title right away.
You Need To Cover More Than Just the Car's Price
If you're buying a car but also want some extra cash in your pocket to cover other expenses, a personal loan allows you to borrow all the money you need and pay it back with one monthly payment. That kind of flexibility also comes up when people look at using a personal loan to buy a house or other major purchases.
A single personal loan can also help you avoid managing separate loans for the car and related expenses. However, applying for the loan may still trigger a hard credit inquiry.
When Should You Not Use a Personal Loan To Buy a Car?
Skip the personal loan and opt for an auto loan if any of the following apply to your situation:
An auto loan offers a meaningfully lower APR.
You need a longer repayment term to make the payment affordable.
The personal loan isn't large enough to cover the vehicle and related costs.
You're buying from a dealership offering competitive financing or promotional rates.
The personal loan's fees make it more expensive overall.
How To Get a Personal Loan for a Car Purchase
If you've decided a personal loan is right for your car purchase, here's how to get one:
Check your credit: Higher scores qualify for better rates. Before applying, review your credit report and address any errors.
Calculate your total loan cost: Add the car's price, sales tax, dealer fees, title transfer and registration fees. Then deduct any down payment you can make. That's the total loan cost.
Compare lenders: Get quotes from a few sources, such as your bank, a credit union and online lenders. Look for lenders that do a soft credit pull for prequalification. Make sure to compare any loan origination fees and prepayment penalties.
Prequalify with multiple lenders: Some lenders let you check estimated rates and terms with a soft credit inquiry that doesn't impact your credit score.
Receive funds and purchase the car: When you find the best lender with the lowest rate, submit your application for approval. If approved, the money will be deposited into your account, allowing you to pay the seller like a cash buyer.
Pro Tip
Try to keep your total monthly vehicle expenses — including your loan payment, insurance, gas and maintenance — to about 10% to 15% of your monthly income.
Bottom Line
A personal loan can make sense for buying a car if you value flexibility, are purchasing from a private seller or need financing for a vehicle that doesn't qualify for traditional auto financing. An auto loan may be the better choice if it offers a lower APR or more affordable repayment terms.
With an unsecured personal loan, the vehicle isn't collateral for the debt and there generally isn't an auto-loan lien on the title. However, personal loans carry higher rates and shorter repayment terms.
Prequalify when available and compare the APR, fees, monthly payment and total cost of both options before deciding.
If you're considering a personal loan for another expense, review these common personal-loan uses before applying.
FAQs About Using a Personal Loan To Buy a Car
Here are answers to the questions people ask most before they borrow.
Can you use a personal loan to buy a car?
Yes. Personal loan funds can generally be used to purchase a vehicle, including one bought from a dealership or private seller. Compare the loan's APR and fees with auto financing before borrowing.
Is a personal loan or auto loan better for buying a car?
It depends on the offers you qualify for. Auto loans often have lower rates because the vehicle secures the loan, while personal loans may offer more flexibility around the seller, vehicle and use of funds.
Can I use a personal loan to buy a used car?
Yes. A personal loan can be particularly useful for an older or high-mileage used car that doesn't meet an auto lender's financing requirements.
Is a personal loan better for buying a car from a private seller?
A personal loan may be the better option when buying from a private seller because the funds are deposited directly into your account, allowing you to pay the seller without relying on dealer financing.
How fast can I get a personal loan to buy a car?
Funding speed varies by lender. Some lenders may provide funds as soon as the same business day or the next business day after approval, while others take several business days.
What credit score do I need?
Lenders often look for a credit score in the mid-600s, though some may approve lower. You may be able to secure a personal loan with a lower credit score, but your interest rate may be higher than you'd like.
Key Terms
Personal loan: An unsecured installment loan you can use for nearly any purpose, including buying a car. Approval and rates are based on your creditworthiness rather than an asset.
Auto loan: A secured loan used specifically to finance a vehicle, with the car serving as collateral. That collateral typically means lower interest rates than an unsecured personal loan.
Collateral: An asset you pledge to back a loan. If you default, the lender can seize it — with an auto loan, that asset is your vehicle.
Secured loan: A loan backed by collateral. Because the lender can recover losses by repossessing the asset, secured loans generally carry lower rates than unsecured loans.
Unsecured loan: A loan that requires no collateral. The lender bases approval and rates on your credit, income and financial history alone, which usually means higher rates.
Lien: A legal claim a lender holds on a vehicle's title until the loan is fully repaid. With an auto loan, the lender is the lienholder until your final payment.
Prequalification: A preliminary estimate of the loan amount and rate you may qualify for, based on a soft credit check that doesn't affect your score. It lets you compare lenders before you formally apply.
Origination fee: An upfront fee some lenders charge to process a new loan, often a percentage of the amount borrowed. Compare origination fees across lenders when shopping for a personal loan.
Summary generated by AI, verified by MoneyLion editors
Sources
Consumer Financial Protection Bureau. "Auto Loans."
myFICO. "What Is a Credit Score?"
Kelley Blue Book. 2025. "Can I Finance an Older Car?"
Photo Credit: kzenon / iStock.com
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