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 be a good choice if you're buying from a private seller, purchasing an older vehicle or want to own the title immediately, while an auto loan is often the better option if you're looking for the lowest interest rate.

Personal loans usually have higher rates and shorter repayment terms than auto loans, so comparing both options before you borrow can help you save money.

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 can 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 rate, fees and term 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:

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 a classic car.

• You'd like to be the title owner right away.

• You need funds to cover costs beyond the car's 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.

With money available in your account through a personal loan as quickly as the same business day, you can make sure you get the car you want.

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.

Often, if a car has more than 125,000 miles or is more than 10 years old, a bank won't finance it through a traditional car 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.

Apart from the convenience of a single payment, you won't have two hard credit inquiries or new loans showing in your credit profile in a short amount of time, which can help keep your credit score up.

When Shouldn't You 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:

• You're getting a lower interest rate with an auto loan.

• You need a longer repayment term.

• You're buying an expensive vehicle.

• The auto loan offers a more affordable monthly payment.

• You're buying a newer vehicle from a dealership.

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:

1. Check your credit: Higher scores qualify for better rates. Before applying, review your credit report and address any errors.

2. Calculate your total loan cost: Add the car's price, plus sales tax, dealer fees, title transfer and registration fees. Deduct the down payment you are able to make. That's the total loan cost.

3. Compare lenders: Get quotes from at least three sources, including your local credit union, which often has the lowest rates, your bank and an online lender. Look for lenders that do a soft credit pull for prequalification. Make sure to compare any loan origination fees and prepayment penalties.

4. Get preapproved: Submit an application for preapproval to find out how much you can borrow and see your interest rates without impacting your credit score.

5. Receive funds and purchase the car: When you find the best lender with the lowest rate, submit your application for approval. Money will be deposited directly 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

If you choose a personal loan, you'll own the title to the vehicle immediately, and you may not be required by a lender to carry collision or gap coverage, though going without it means you'd absorb the full loss if the car is totaled. You'll still have to pay off the personal loan while securing funds to buy a new vehicle.

Get prequalified and check rates for both an auto loan and a personal loan, and compare your options before you make your choice.

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 cover taxes and fees when buying a car?

Yes. Unlike an auto loan, a personal loan can be used for more than just the vehicle's purchase price. You may be able to borrow enough to cover sales tax, registration, title fees, repairs or other related expenses in one loan.

Is a personal loan or auto loan better for buying 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.

Do personal loans have better interest rates than auto loans?

Since auto loans are secured loans, backed by your vehicle as collateral, they often have lower interest rates than personal loans.

What credit score do I need for a personal loan for a car?

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.

Is it a good idea to pay off a car loan with a personal loan?

Paying off a car loan with a personal loan can be a good idea if you also want to take out additional funds and prefer a single loan payment, or if your car is too old or has too high mileage to refinance with an auto loan. If you want to obtain the title to your car right away, buying out your auto loan with a personal loan is one way to do it. In general, though, a personal loan comes with higher interest rates than a secured auto loan.

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