A personal loan can be used for almost anything, including car purchases. However, just because you can use a personal loan to buy a car doesn't mean you should. There are only a few circumstances, most of them relatively rare, in which a personal loan is a better solution than a traditional auto loan to finance a vehicle.
Here's the skinny on personal loans, when they make sense for car purchases, and when they don't.
Many loans are designed for a specific type of purchase (mortgages for homes, auto loans for cars, and so on), but personal loans are for anything. You can use the proceeds from a personal loan however you'd like, whether it's to refinance debt, go on a vacation, or buy a car.
When deciding whether to give you a personal loan, a bank looks at your income, credit score, and any monthly obligations you have. From there, the bank decides how much it can lend to you, and on what terms.
Because a personal loan isn't contingent on how you plan to use the money, there aren't any outside forces that can throw a wrench in your plans. You might apply for a $10,000 personal loan with the plan to buy a car at some point in the next month or two. With cash in hand, you can confidently pay cash for a car you find on a dealer lot or on websites like Craigslist or eBay. You don't have to wait to find a car to apply for a personal loan.
When you accept a personal loan, the funds are typically disbursed by direct deposit into a savings or checking account. If you accept a $10,000 loan today, you could easily have the money in your bank account in as little as 24 or 48 hours.
To make sure you're getting a fair interest rate for your loan, compare 2-3 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.
To be clear, a personal loan is not a car loan -- it's not specifically issued for a vehicle purchase. Still, there are some times where it may make sense to use a personal loan instead of a traditional auto loan to buy a car.
Here are some scenarios where a personal loan can make sense:
To be clear, these are very specific circumstances that affect a minority of 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:
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.
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