Can you use a personal loan to buy a car?
Quick insights
- Both personal loans and auto loans can be used to purchase a car, but they have different financial implications.
- Personal loans may allow more flexibility regarding which car you purchase and they may not require collateral.
- Depending on your financial situation and personal preferences, a personal loan may be a more beneficial option than an auto loan.
Looking to purchase a car? You may be wondering if you should apply for a personal loan rather than an auto loan to help cover the cost of a new vehicle. The answer depends on what your financial circumstances are and what you’re looking for. Let’s dive deeper below.
Can you use a personal loan to buy a car?
Yes, you can use a personal loan to buy a car. A personal loan is a type of unsecured loan that can be used to pay for large expenses, such as a car. Unlike secured loans or auto loans at a dealership, personal loans do not use your car as collateral. Note: Chase does not offer personal loans.
Personal loans may require higher credit scores and come with higher interest rates due to the increased risk for the lender. However, it can be a more flexible approach to buying a car, as the funds are not limited to being used for a certain make or model, or even car purchases altogether.
Personal loan vs. auto loan
A personal loan can be used for a wide range of expenses—it is not limited to cars. It is also a type of unsecured loan, meaning there are no assets or collateral involved. (Note: not all personal loans are unsecured and can use other items as collateral).
Auto loans, however, are a type of secured loan that uses your car as collateral and is only used to help you pay for a car.
Pros and cons of using a personal loan to buy a car
Pros of using a personal loan to buy a car include:
- No collateral requirement
- Flexibility in car choice
- Potential for using funds for other purposes or consolidating other debts
Cons of using a personal loan to buy a car include:
- Potentially higher interest rates
- Has the potential to negatively impact your credit score (such as if you miss payments)
- You may miss out on certain deals that an auto dealership may offer to help save on a car
- May require a higher credit score to be approved
- You may not be approved for enough money to cover the cost of the car you want to purchase
How to get a personal loan for a car
To qualify for a personal loan, it may be helpful to look at the terms and conditions as well as the requirements needed to get approved for the loan, like a minimum credit score and income level. Research different loan terms from various reputable financial institutions, such as banks and credit unions, and find one that meets your financial needs. Then, apply for the loan. To do this, you may need to provide important information such as proof of identity, income and your credit score.
Different lenders may have different types of loan offers, so make sure you’re reading through the loan agreements carefully before making your decision to use a personal loan to buy your car.
When to use a personal loan for a car
There are certain scenarios when it could make sense to use a personal loan over an auto loan, such as:
- Purchasing from a private seller
- You want to avoid using your car as collateral
- You want to avoid auto dealership financing fees
- You can afford most of the car and want to use remaining funds towards other purchases
Conclusion
Deciding between a personal loan or an auto loan to pay for a car depends on your financial situation and personal preferences. You may want to consider doing some research to see which type of loan may be most beneficial to you. For example, consider overall costs of the loan (interest rates and fees) as well as flexibility. Whichever you decide to apply for, always read the terms and conditions so that you can make an informed decision.
