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Personal loans are incredibly versatile. They can be used for nearly any purpose, including the purchase of a car. But just because you can use a personal loan to pay for a new vehicle doesn't mean it's a good idea. You're almost always better off using a traditional auto loan to finance a vehicle. Here, we'll explain why.
Personal loans can be used for anything, whether it's to pay off credit card debt through debt consolidation, get rid of a high-interest loan, or make a car purchase. And though it's rare, there are occasions when a personal loan is your best car finance loan option.
To make sure you're getting a fair interest rate for your loan, compare two to three lenders (or more!) before signing on the dotted line. Not sure where to start? Check out our list of best low-interest personal loans, which includes reviews from our experts.
If any of the following situations apply to your car purchase, you may consider contacting a bank, credit union, or online lender about a personal loan:
When you're applying for a personal loan, it's important to know your credit score. Some lenders only work with high-credit borrowers, while others are open to lower credit scores. Some lenders specialize in providing loans to borrowers with bad credit. Find out more about how your credit score impacts your loan eligibility in our guide to what credit score you need for a personal loan. It all begins with ordering a copy of your credit report and poring over your credit history to find any mistakes.
To be clear, these are very specific circumstances that affect very few people buying cars. Even then, it's not clear that using a personal loan to skirt auto lenders' insurance requirements or to fund the purchase of a project car is the smartest financial move. But if you're going to do it, a personal loan may be the only way.
Traditional auto loans exist because they're a better fit than a personal loan for the vast majority of used or new car purchases. Here's why you might want to stick with the tried-and-true auto loan when buying a car:
The calculator below can give you a better idea of whether or not a personal loan is right for you. Play around with different loan amounts and loan terms to see what fits your budget.
You can use a personal loan to buy a car, and in some cases, it can be the easiest and most practical solution. But auto loans remain the most popular way to finance a car for the simple reason that they often offer the best mix of interest rates, repayment terms, and availability for the vast majority of car purchases.
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.
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